Is Invoice Financing Suitable for Your Business?

Waiting up to 120 days for an invoice to be paid can cause severe issues for small businesses. Having a constant cash flow is vital for businesses, especially those that are newly formed or operating on small margins. This is why invoice financing can be so important to ensure your business can continue to operate without the need to make cutbacks until an invoice is finally paid.

But is invoice financing suitable for all types of business? In this article, you will find out the answer to that exact question.

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What is Invoice Finance?

In simple terms, invoice finance is when a business sells their outstanding invoices to a factoring or discounting company, for a cash lump sum. This allows a business to have an advance payment on an invoice before the customer has made payment.

Most lenders will advance somewhere between 60-90% of the full figure depending on the sector your business works within, proof of debt and whether any contracts are involved with the invoice.

Applying for invoice finance is a simple process, and once accepted all you need do is simply raise your invoice as usual and send to your customer, then share the invoice information with your lender and they will advance the funds within 24 hours. Once the invoice is paid by the customer, the advance will be repaid to the lender, and the balance is made available to you, with any lender’s fees taken away.

Once you’ve found the perfect lender for you, your business can benefit from an advance on all of your invoices. Advanced payment will help to ensure that your company has a sustained cash flow coming into the business and plays a vital role in helping you to grow quickly, with money available to invest in new products, machinery, premises and even staff.

Invoice Factoring vs Invoice Discounting

There are two types of invoice finance which are widely used, invoice factoring and invoice discounting. With invoice factoring, the lender will take the role of managing the sales ledger, credit control and chasing customers for the settlement of the invoices. Whereas with invoice discounting, your business will remain responsible for its own sales ledger and will chase payment in the usual way.

Another difference you’ll find between invoice factoring and invoice discounting comes about in the area of confidentiality. When taking our invoice factoring services, you will be offered confidential and disclosed options, within a confidential facility, the payee will pay directly into a trust account in the businesses name for appearances, but this is controlled by the lender.

As a general rule of thumb, invoice factoring is usually better suited for small or new businesses who are looking to quickly release cash in order to grow their operations. Factoring is a fantastic solution, as the lender will take away the need for your company to chase up invoices, meaning your staff can focus on growing the business in the quickest and most sustainable way possible.

Invoice discounting is perfectly suited to more established companies with who have robust internal process in place and a track record of success. Larger businesses who have been in operation for a considerable amount of time, often want to retain the task of chasing up invoice payments themselves.


What Types of Business Use Invoice Finance?

Generally speaking, invoice financing is best suited to businesses who provide products or services to other businesses. Lenders are also more inclined to provide invoice financing solutions to businesses that have a wide range of customers, as they will view this as a less risky investment than lending to a business which heavily relies on a handful of customers.

Invoice financing is used extensively by the following types of business:

  • Couriers
  • Haulage companies
  • Construction companies
  • Manufacturers
  • Recruitment consultancies

This list is by no means exhaustive, as there are many more businesses that successfully utilise invoice financing on a regular basis. Essentially, if you raise invoices for products or services you have provided, to a wide range of customers, you will have a good chance of meeting eligibility criteria for taking out invoice finance.

The Benefits of Invoice Financing

We have already discussed some of the biggest benefits invoice financing can bring to your business in the short and long term in a previous blog post. But their benefits are so profound, we thought that it would be worth mentioning a few of the key benefits they can bring to your business within this article too. Here are just a few of the many benefits invoice financing can bring to your business:

  • The total funding level that is available to you will increase with your turnover
  • Funding is secured without the need to use assets as collateral
  • Up to 90% of the total value of your outstanding invoices can be paid out in under 24 hours

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If you’re interested in taking advantage of invoice finance, or simply want to find out more information about if your business could benefit from this type of financing, please feel free to get in touch with us. Our friendly and knowledgeable team are on hand to provide you with quotes from hundreds of trusted lenders and will assist throughout the process. You can get in touch by using our simple online enquiry form, or by calling us on 0330 0582 330.

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