Invoice Finance is a type of business finance where a business raises finance against its unpaid invoices, i.e. the business’s debtor book. This is only suitable for businesses that trade with other businesses, where credit terms are provided. There are two main types of invoice finance:
The finance provider takes security over the debtor book using a debenture and advances up to 95% of the outstanding invoices, providing the business with cash flow to trade. Funding can be available as quickly as within 24 hours of raising the invoice, allowing you to receive funds in advance of your client making payment.
The total funding provided is based on specific criteria set out by the funder and allows businesses to access finance for cashflow or investment purposes using an all too often unused asset on your company’s balance sheet.
Advantages of Invoice Finance
Receive up to 95% of your sales invoice
You can unlock cash tied up within your business to support your working capital cycle and fund your growth ambitions
Quick funding within 24 hours of invoice
With Invoice Discounting, approval is quick and easy. In most cases you can draw down funds against your invoices within 24 hours
Utilise the value in your debtor book
Invoice Discounting allows you to borrow against the security of your debtor book and often allows you to avoid pledging personal security or other business assets often required to secure an overdraft facilit
A facility that grows with you
As your business grows, an Invoice Discounting facility typically grows with you, helping to smooth out cash flow hurdles that often hinder businesses without this facility
Choosing the best Small Business Invoice Finance option
The options for small business financing can vary greatly, and one of the main advantages of invoice financing is that you can access funds very quickly – often within 24 hours. However, asset-based lending, selective invoice finance or export finance may be better options for your business. There are also options to consider if you are thinking of a short-term or a long-term financing solution.
We work with all the invoice financing companies in the UK to get you the best deal for your circumstances. Invoice financing for small business can be complex and time consuming. We take the hassle away, so you can receive the benefits of UK business invoice financing.
Small business can often struggle with cashflow if their debtors are slow to pay. Or sometimes you want to release funds to help grow your business. At Ignite Business group, we are experts in all aspects of SME business invoice finance – talk to us today – book a free consultation.
How does Invoice Financing work?
In simple terms, invoice finance is selling your unpaid invoices to a finance company so you can release their cash value quicker. Often funds are available within 24 hours!
You can raise the working capital you need to run your business without the worry of when your invoices will be paid.
- So, you just invoice your clients as usual
- Choose which of your invoices to sell (this can be one, a few or all of your invoices
- The invoice financier buys that debt from you
- You then receive up to 95% of the value of the invoice(s)
- Then once the customer pays the invoice, this is paid to the finance provider.
- You then receive the final balance, less any fees or charges agreed.
Invoice Financing costs
Invoice Finance costs vary from business to business but are broadly split into the following categories:
Arrangement Fee / Survey Cost
Some lenders will charge a fee to carry out due diligence, known as a survey and there may also be an arrangement fee, which is the cost of setting up the facility. Some will also charge a small annual renewal fee thereafter.
Service Fee
The Invoice Discounting Costs include a service fee for the day to day administration of the facility, usually charged as a percentage of the gross invoice value but sometimes this can be a pre-agreed fixed monthly amount. When this is charged as a percentage, there is often a minimum monthly charge agreed at the outset.
Discount Fee
This is calculated as a percentage of the total funds you borrow.
Ancillary costs
Some invoice finance companies will charge additional ancillary fees, which can include CHAPS payment charges for when you need to draw down funds on the same day.
Contact us to speak to one of our experts and find out if Invoice Finance is the right solution for your business and for tailored quotes.
Benefits of Invoice Financing
Finance is an integral part of any business, without which things would come to a sudden halt. However, it is difficult for companies to procure funds without incurring debts and raising the risk. Companies are always searching for better financing options, especially for short-term funds.
The various benefits invoice financing offers makes it a lucrative opportunity for businesses.
Here’s our Top 3 reasons why you should consider invoice finance:
1. It helps improve cash flow
The biggest advantage of business invoice financing is that it significantly enhances your business’s cash flow. You can provide a regular influx of money to your business through invoice financing for better financial stability.Invoice financing eliminates the need to wait for invoices to be paid – sometimes as long as 90 days – enabling you to access working capital quickly for a small price.2. Cover day-to-day business expenses
Every business has to cover many costs such as salaries, hiring, purchasing goods and materials, office costs, etc. Most businesses don’t have enough reserve funds to cover these costs and rely on short-term borrowing to cover such expenses. This creates an additional burden on your firm. There is no debt creation with invoice financing, so you don’t have to worry about added interest you have to pay.3. Improve credit relations
Incurring debts to cover your costs can have long-term consequences, including losing credibility in front of lenders. However, if you opt for invoice finance, you don’t have to worry about such things.- Your financing approvals are based on your customer credibility.
- You can determine how many invoices you want to get financed.
- You can receive the cash within 24 hours – far quicker than a loan.
- The risk involved is also less compared to other financing options.
Compare invoice finance: invoice factoring vs discounting
In this invoice financing comparison, we compare the two main types: invoice factoring and invoice discounting.
Factoring and Discounting are both types of Invoice Financing. So, consider invoice finance to be the generic term and then specifically, the client has factoring or discounting. This really relates to how the financing company operate with the customer and their debtors.
Invoice Factoring is a more in-depth service. Typically, it’s a facility that is disclosed to the client’s customers, and finance company will handle credit control on the client’s behalf. This is typically used for smaller or newer businesses where the financier wants to retain more control. This removes the need for the business to chase their debtors, allowing them to focus on growing their business.
Invoice Discounting (sometimes also known as Confidential Invoice Discounting or CID) is a non-disclosed facility, meaning that the clients customer base need not have a clue that they use the facility. The business owner continues to handle their credit control in house. There is much more trust involved in this facility, hence it is usually reserved for larger businesses, or ones that have been operating longer.
| Invoice factoring | Invoice discounting | |
|---|---|---|
| Cash released in 24 hours | Yes | Yes |
| Up to 95% upfront | Yes | Yes |
| Finance company contacts debtors | Yes | No |
| Business owner contacts debtors | No | Yes |
If you still have questions about your market finance options, talk to the experts at Ignite Business Group. We have been delivering exceptional invoice financing options for many years.
Our company partners with an array of financing companies, so you can compare invoice financing options and quickly find one that will work best for your business. Depending on your industry, you could tap into up to 95% of your outstanding invoices for fast cash flow you can use to grow your organisation.
For an invoice financing quote, chat to us or apply for free today.
Consider Asset Based Lending – a more flexibly facility
Asset Based Lending, also known as ABL is a more advanced form of invoice finance. In addition to debtors, ABL also takes into account the wider assets of the business, including stock, property and plant & machinery. Asset Based Lending provides a flexible facility that works in a similar way in Invoice Discounting, but leverages cash locked up in other assets as well as just the debtor book.
Typically, Asset Based Lending is more commonly used by mid-sized and larger companies as the additional monitoring required to make the facility work tends not to be cost effective for smaller businesses.
The main advantage of Asset Based Lending is the ability to release cash tied up not only in the debtor book, but also stock holding and also property, plant and machinery, but often without the more onerous debt servicing obligations that come with conventional lending facilities such as a term loan. An Asset Based Lending facility will fluctuate in line with your businesses requirements, i.e. when your stock holding and debtor book reach higher levels, you will typically have a higher availability of borrowing. When compared to the rigidity of a term loan facility, it provides significantly more flexibility.
An Asset Based Lending facility can provide immediate and crucial cashflow for your business. Most ABL facilities are provided on a Confidential basis, meaning that you do not have to disclose to your clients that you are using the facility.
Is Asset Based Lending Right for your Business? Find out here now
Or contact us today to discuss the best invoice finance solution for your business
