It’s scalable: As your business’ turnover increases, you’ll be able to access more cash and continue to improve your business cash flow. It’s quick to obtain: Traditional bank loans can take a long time to approve, whereas you could get invoice finance funding within 24 hours. No risk to assets: Your unpaid invoices act as security for the loan and you usually won’t be expected to provide additional security. Invoice finance prosĪs with any funding option, there are both pros and cons to financing your invoices. We’ve written a handy blog post that explores the key differences between invoice factoring and invoice discounting. Your business’ size, circumstances, needs, preferences and goals will determine the type of invoice finance you opt for. Essentially, you get to choose which invoices you'd like to finance and handle the rest as normal. Unlike factoring and discounting, these aren't full-facility products. Selective invoice finance lets you choose specific customer accounts to finance, while spot factoring allows you to choose specific invoices. You'll still have to do your own credit control to ensure customers pay on time It’s generally available to more established businesses with higher turnover Although your clients might not be aware that you’re using invoice finance, you won’t benefit from someone else doing the invoice chasing for you. Invoice discounting is when you retain control over your business’ credit control process. Your clients will know you're using a factoring providerįactoring providers can credit check potential customers for youįactoring can be easier for smaller or early-stage companies to secure This can help you focus on running your business instead of chasing late payments, however your clients will know you’re using invoice finance. Invoice factoring is where the lender provides credit control services to ensure your clients pay on time. In the UK invoice finance falls into three main categories: invoice factoring, invoice discounting and selective invoice finance. Then, when the customer pays the invoice, Sarah gets the remaining value of the invoice (£750) minus fees (£150), so she receives £600. Sarah shows the invoice to the lender and receives her advance of £4,250 within a couple of days. The lender agrees to advance her 85% of the invoice (£4,250). Remember, the value of the invoice she wants to finance is £5,000. Sarah decides to go ahead and take out invoice finance for her small business. Sarah agrees to an invoice finance deal that will give her 85% of the invoice up-front, with total fees at 3%. Sarah is owed £5,000 by a previous client for a completed project, but the invoice has payment terms of 30 days. Sarah knows she'll need to pay for extra materials and take on another member of staff to do this new job, but she'll only get paid when it's finished. Sarah's Interiors Ltd has a big new project coming up. Step 5: The finance company provides you with the remaining balance (after subtracting the fees for their service). Step 4: Your clients pay their invoices into the finance company’s account. Step 3: The invoice finance company advances you up to 90% of the value of the invoices, sometimes within as little as 24 hours. Step 2: After you’ve set up your invoice finance facility the company will effectively buy the debt your customers owe. Step 1: You issue invoices to your customers on completion of work, with the usual payment terms of 30 to 90 days. There are different types, and you can also decide whether or not to retain control over your business’ sales ledger. Invoice finance could be worth exploring if you require funding for your business but are unable to offer assets as collateral for a loan. Invoice finance isn’t free, however, and the lender will subtract their own fees from this final sum. When your customer finally pays up, the invoice finance company will provide you with the remaining value of the invoices. These funds can be used to bolster your cash flow or to invest in an area of your business that needs funding. So, instead of waiting weeks or months to get paid, you can secure a percentage of the value of your invoices quickly – in some cases within 24 hours.ĭepending on their risk criteria, an invoice finance company will typically provide up to 90% of the value of your invoices immediately. Invoice finance lets you use your unpaid invoices as security for funding.
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