Best Invoice Financing

As the COVID-19 pandemic continues to take a heavy toll on business, and government stimulus packages and assistance are getting rolled back, many organizations will be considering other avenues for stabilizing their cash flow.

One finance strategy often overlooked is invoice financing. However, in the current economic climate, invoice financing companies are in an excellent position to help companies continue to serve their customers and keep the supply lines open.



invoice finance



What is Invoice Finance?

Invoice finance is similar to other financing options but has a few key differences that may make it a more convenient option. Most financing requires some type of collateral to use as security against the loan. In invoice financing, collateral is created from the balances owed on a company’s invoices.

It’s a short-term loan that gives an organization access to most of the value tied up in their outstanding invoices. Read on to learn how working with invoice financing companies can help you streamline your business operations.


Types of Invoice Finance

Depending on how your company manages its finances, there is likely an invoice finance solution to suit your situation. Here are a few of the most popular options offered by invoice financing companies.

Invoice Trading – You sell your outstanding invoices for a part of the invoice value and hand over the responsibility of collecting payment to the invoice financing company.

Invoice Factoring – Your company receives a portion of the outstanding invoice amount. For example, you have $25,000 in unpaid invoices and agree to a 4% fee. The invoice finance company agrees to forward you $20,400 for the invoices. The invoice finance company then collects payment and forwards you the remaining $3,600, which gives you access to a total of $24,000.

Invoice discounting – Your company borrows against the collateral tied up in the invoices. Most agreements will give you access to 80% of all invoices under 90-days old. Invoice discounting is a good option if you want to keep your invoice financing private from your customers. It can be more expensive than other options, so it is best used with companies with high margins as they can more readily absorb the higher fees and still make a profit. Your company retains full responsibility for collecting on the debt, so it may not be a suitable solution for some small businesses with limited administration resources.


1. Take Advantage of Opportunities

Depending on the credit terms you give your customers, you could be waiting anywhere from 30 to 90 days for payments on outstanding invoices to show up in the company bank account.

It’s not unreasonable to think that organizations operating through the pandemic will have their own cash flow problems, making early payments impossible for them and slow payers a likely possibility. Unpredictable cash flow makes it difficult to grow your business or take advantage of opportunities.

Accessing the cash tied up in your outstanding invoices through invoice finance gives you opportunities you would otherwise be forced to miss. You wouldn’t have to pass on a big job because you couldn’t afford the staff, or you would have the funds to invest in infrastructure to take advantage of a business strategy, such as enabling your team to work from home.

Many of your suppliers likely offer more favorable terms for early payments. When adding up the savings for early payments to your suppliers versus the fees associated with invoice financing, you may be able to free up significant amounts of extra cash by making early payments to your suppliers.


2. Invoice Finance is More Flexible than Traditional Loans

Traditional bank loans are not very flexible when it comes to repayment options. They often come with penalties for early payouts, have lengthy terms, and require you to jump through quite a few hoops to get approved.

Invoice finance options give you access to the cash within 24 to 48 hours, are short-term, and payments are made once your customers come good on their invoice. You can also select the invoices you want to use as collateral, so you can effectively increase the security of the loan by only using invoices from your most reliable customers as collateral.


3. Reduce the Chance that Late Payments will Cripple Your Business

Bad debts and late payments are responsible for a lot of businesses failing. Taking legal action is an option, but the process is lengthy and requires hiring expensive lawyers, possibly for months.

Invoice finance can help reduce the risk because they perform credit checks on your debtors and have insurance against non-payment. Of course, it will depend a lot on your agreement with invoice financing companies, as there are different types of invoice finance suitable for a range of scenarios.


4. Save Money on Admin Costs

Chasing payments on outstanding invoices can be a considerable burden on a small business when you add up the time and administration costs. The right invoice finance solution could free you up from this unpleasant task and give you more time to grow your business.


5. Access Cash Whenever Your Business Needs it

A traditional business loan comes with terms that require you to make similar repayments every month. If you suddenly find yourself with a cash surplus and able to pay off the loan in full, the early payment penalty may mean it’s not worthwhile. In short, you are stuck with the agreement for the term of your loan regardless of your financial position.

Invoice financing companies offer short-term finance that gives you fast access to cash on outstanding invoices whenever you need it. You could consider invoice financing to be a line of credit you can access whenever you need it, with amounts that can easily be adjusted on a month-to-month basis.

More and more companies are beginning to realize the advantages of having access to more flexible finance solutions. If your company is facing issues with an unpredictable cash flow, invoice finance may be a viable solution to help you take advantage of new opportunities or invest in the growth of your business.


Need to Know More About Invoice Finance?

If your company is looking for flexible finance options to smooth out cash flow troughs or needs to finance a growth opportunity, get in touch with Ignite Business Group to find out how flexible and affordable debt factoring can be for your organization.

If you would like to find out more about Invoice Financing call us on 01332  896 020. Or, email us to see how we can help your business’ cashflow.


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