Grow Your Business with Invoice Finance

Securing business finance today is a daunting challenge faced by entrepreneurs in every industry. The global economic climate, stringent credit criteria and rising administrative costs fall on the list of woes that every business has to deal with. However, there are a few facilities that could fuel growth into businesses.

As the name suggests, invoice finance is a business funding solution, where cash is released against the value of outstanding sales invoices. Depending on the nature of the transaction, up to 95% of the invoice value could be released within 24 hours, once the invoice is raised.

When a business makes a sale, customers could take 30-90 days to pay for the invoice. Invoice finance then bridges the gap between when a sale is made and when the customer completes payment. The remaining invoice value is paid to the business, less any charges, once the customer settles their bill.

Forms of Invoice finance

There are two forms of invoice finance: factoring and invoice discounting. Both facilities are similar in that they release a cash advance against monies already earned. However, they differ in the following ways:

  • Credit control: With factoring, the finance provider manages the business’ sales ledger. This involves chasing the business’ customers when needed and collecting payments. On the other hand, invoice discounting allows the business to manage its own sales ledger and debt collection.
  • Target market: Factoring is a suitable funding option for smaller businesses, SMEs and start-ups, with a turnover in excess of £50k. Larger businesses with in-house accounting and credit control systems and a turnover of at least £250k could potentially qualify for invoice discounting.
  • Confidentiality: Factoring is typically a disclosed arrangement as the customers are notified of their invoice payment. Invoice discounting can be a confidential facility where the business collects its own payment – customers are unaware of the lender’s involvement.

Pre-eligibility criteria for Invoice finance

A business could qualify for invoice finance if:

  • It sells to other businesses and issues invoices in the process
  • It offers credit terms of 30-90 days

The Benefits of Invoice Finance

  • Additional working capital: The funds released could be used to cover administrative costs, payroll or reduce existing debt.

  • Improved cashflow position: Businesses benefit from up to 95% of the cash locked up in their sales ledger, typically within 24 hours.

  • Flexibility: Invoice finance releases funds that grows alongside the business – the more invoices raised, the more available funding.

  • Early supplier discounts: Businesses could take advantage of early supplier discounts and offers.

  • Optional Bad debt cover: Via a non-recourse arrangement, the facility could include credit insurance against customer defaults.

  • Business planning: Once a business qualifies for the facility, there’s some certainty about cash projections as the funds are released almost immediately.

Invoice Finance costs

Just like any other form of commercial funding, invoice finance has two principal costs. They include:

  • Service fee: This is a charge by the finance provider for administering the facility. This covers the day-to-day servicing of the ledger books and customer invoices. It is charged as a percentage of the business’ turnover, usually 0.5-3%.

  • Discount charge: This is simply the interest rate on the amount lent by the finance provider. It is usually a fixed percentage above the bank rate.

Accessing Invoice finance

Invoice finance is typically offered by banks and independent lenders. However, approaching them directly may be a time-consuming and frustrating task. Commercial finance brokers such as help hundreds of businesses secure factoring and invoice discounting facilities with lenders on their extensive panel. Speaking to a broker makes the process easy as they introduce you to the right lender(s) in the market, based on your business’ needs.

This guest post is written by, the specialist invoice finance brokers.

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