Invoice Finance and Your Small Business

Reasons why you should consider using the alternative finance option to access funding for your small business

Invoice Finance and Your Small Business

As a small or medium enterprise, you’re no doubt aware of the issues faced when trying to secure funding. Securing credit from traditional lenders such as banks is becoming increasing difficult, with many businesses receiving nothing in the way of financial support. And for those who do secure some form of funding, in most instances it isn’t enough.

This has led to the creation of many asset-based forms of funding, such as invoice finance.

Invoice finance explained

In the main, invoice finance solutions come in the form of factoring and invoice discounting, with both involving the same principle of funds being provided in accordance with the invoices issued.

How Does Invoice Finance Work?

As soon as you issue an invoice, the invoice finance provider will immediately release an agreed percentage of the total, providing you with an instant injection of cash flow. Once your client pays the invoice, you’ll receive the remainder minus a small admin fee taken by the funder.

What are the Differences Between Factoring and Invoice Discounting?

Opting for factoring you will place control of your sales ledger in the hands of the factoring agent’s dedicated credit control department, who will take on the task of chasing your clients for payment. This will leave you with time free to devote to the other areas of your business.

Invoice discounting on the other hand allows you to retain control over this process, ensuring that if you want to keep the invoice finance agreement confidential from your customers, you can do so.

So, you know what it is; but why should you take advantage of invoice finance?

Advantages of Invoice Finance

Here are the reasons why you should:

  • It’s a quick and simple process
  • Invoice finance generates an immediate flow of working capital
  • A regular cash flow will enable you to make concrete working plans with the money in the bank, based on your invoices
  • The money you receive is an important source of capital which is not a loan and involves no credit on the behalf of the lender
  • Stress levels caused by having insufficient funds to meet your business obligations will be removed
  • The funds provided through invoice finance will be based on the financial strength of your customers as well as your business
  • The amount of funding available will increase along with the size of your business

For further reading on the subject, see our business advice articles on Invoice Finance – Things to Watch Out For and Growing Your Business with Invoice Finance.

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