Invoice Finance

Avoid cash flow issues with factoring and invoice finance through a 3rd party

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Invoice Finance Business Funding

As a business owner, there’s nothing more frustrating than encountering cash flow issues as a result of unpaid invoices. Invoice finance is a financial service, which aims to plug gaps and prevent cash flow problems by releasing the capital tied up in outstanding invoices. If you provide clients and customers with invoices on a regular basis and you can’t always guarantee swift payment, you could benefit from invoice finance.

As with all types of business funding, there are various pros and cons to invoice finance you’ll need to consider:

Advantages of Invoice Finance:

  • Prevents cash flow issues: if you’ve got suppliers or employees to pay, but you’re waiting on an invoice to be processed, you may run out of cash before that payment clears. Invoice finance gives you the opportunity to make payments without worrying about gaps in funding putting you out of business.
  • Provides rapid access to funds: with invoice finance, you don’t have to hang around waiting for weeks or months for a client to pay you. Once you’ve come to an agreement with a financial provider, you can enjoy rapid access to funds.
  • Enables borrowing against working capital: many companies may consider taking out a loan or using credit to combat cash flow issues. With invoice finance, you’re borrowing against money that you have already secured, which represents lower risk.
  • Enables businesses of all sizes to grow: if you’re a growing business, you need capital to invest. If you’ve got an order coming in, but you need funds to be able to accept it, delayed payments can stall growth and leave you with no option but to turn customers away. Invoice finance provides an alternative, enabling you to access the money you need to expand.
  • Factoring provides access to additional services, such as credit screening.
  • Eliminates the stress of waiting for payments to clear: running a business can be stressful, especially when it comes to balancing the books. Invoice financing can help to alleviate the stress caused by cash flow problems.

Disadvantages of Invoice Finance:

  • Fees: you will be charged fees for this service, which will eat into your profits.
  • This product is not ideally suited to businesses that deal with members of the public. It is predominantly designed for companies that deal with other businesses (B2B).
  • Outsourcing management of sales may impact business-client relationships.

What Is Invoice Finance?

Invoice finance is a financial product, which enables businesses to access capital that it is tied up in invoices that haven’t yet been settled. If you’re waiting on a payment from a client, and you have suppliers or members of staff to pay, invoice finance can help you bridge the gap and prevent cash flow issues. Essentially, invoice finance offers you the chance to borrow money against work that you have already completed or products that you have already sold. Instead of waiting days, weeks or months for your client to pay you, invoice finance offers the option to access funds that are tied up in invoices immediately.

Invoice Finance Image

How Does Invoice Finance Work?

Invoice finance provides a solution for businesses that are waiting on unpaid invoices. If you’re short of cash because your clients haven’t paid you, you can arrange for capital to be released based on the value of outstanding invoices. Rather than waiting for weeks, you can access the funds you are owed straight away. You will be borrowing money against funds that you have already secured, rather than relying on credit.

What Is The Process For Acquiring Invoice Finance?

If you’re waiting for an invoice to be processed, and it may take weeks, even months, for a client to pay, you may find yourself short of cash. With invoice finance, you present your financial provider with the invoices that have been sent to your clients. In turn, the provider sends you a portion of the value of the invoice (usually up to 80 per cent), which gives you instant access to the funds you are owed.

There are two main types of invoice finance – Factoring and Discounting. In the case of factoring, the provider will arrange payment of the invoice, and once the client has paid in full, you will receive the outstanding balance. The other option is invoice discounting. With discounting, you manage the payment. When a customer pays the invoice, the provider will take back the amount they lent to you, and you will keep the remainder.

It is worth noting that financial organisations charge a fee for offering invoice finance. This will usually be deduced from the advance payment.

Invoice Finance – FAQs

The process is simple. If you have unpaid invoices, you will be able to release funds based on the value of your outstanding invoices. An advance payment will be made (minus fees) and the remaining balance will be settled once the invoice has been paid in full.

The timeframe may vary according to the provider, but many companies provide instant access to funds.

Fees vary according to the individual provider and the value of the transaction. Many providers charge a percentage fee. There may also be a service charge.

If you have unpaid invoices, you engage in business to business trade, and you want to avoid cash flow issues, you may find that invoice financing works for you.

In the past, there was a perception that invoice finance was a reflection of a poorly run business, but this is no longer the case, and invoice financing is widely regarded as an effective solution for modern companies.

Invoice Finance For Ambitious Businesses

Whether you are a B2B provider in your start-up phase, are an ambitious business looking to grow or an established business – invoice finance can help.

For more information on invoice finance and other types of funding available for your business, give one of our friendly team a call today on 0800 047 2389 or fill out our contact form and we’ll get back to you.