Common questions about Invoice Finance

Small businesses are vulnerable when payments are slow in coming. Especially now that the government is winding down the popular COVID-19 related assistance loans. A sluggish cash flow can really hinder business growth, especially in a stumbling economy brought on by a pandemic. The faster a company can rectify its cash flow challenges, the quicker it can return to running at full capacity.

We have pulled together some commonly asked questions into a Guide about Small Business Invoice Finance, to help you decide if it is right for you.

Alternatively please don’t hesitate to get in touch, to find out more about Small Business Invoice Finance.  

What is Invoice Finance?

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 suitable for businesses that trade with other businesses, where credit terms are provided.

What types of Small Business Invoice Finance are there?

There are 2 main types of Invoice Finance:

Invoice Discounting

Advance against money owed to you in the future.

Invoice Factoring

Sell your invoices, minus a small fee to an invoice factoring company.

Why do businesses use Invoice Finance?

Businesses that are selling goods or services to other businesses can use invoice finance to gain necessary working capital.  Invoice Finance companies can help businesses of all sizes in almost any industry.  Typical industries that might have a requirement are: recruitment, logistics, manufacturing, construction, information technology and many others.

How does Invoice Finance work?

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.

How much can I borrow with Invoice Finance?

The total funding provided is based on specific criteria set out by the funder and allows businesses to access finance for cash flow or investment purposes using an all too often unused asset on your company’s balance sheet.

What are the costs involved with Invoice Finance?

Invoice Finance costs vary from business to business but are broadly split into the following categories:

  • Arrangement Fee / Survey Cost
  • Service Fee
  • Discount Fee
  • Ancillary costs

See our page on invoice costs for further information

What are the advantages of Invoice Finance?

Most companies operate on a 30 or 60-day credit system, which can sometimes produce cash flow challenges. Invoice financing can help shorten the gap between when you make a sale, and the time you receive payment. Instead of waiting 30 or 60 days for payment, invoice financing delivers immediate access to working capital without a typical loan’s long-term commitment.

Payments with invoice financing only fall due when your clients bring their invoices up-to-date. You also incur no interest charges and only pay the fees to which you agreed.

When you have money tied up in a big project with a bad debtor, poor cash flow may mean you have to pass on other lucrative contracts. Invoice finance can give you the cash injection you need to keep growing your business, without stretching your resources too thin.

Invoice financing is a much faster method of accessing funds than a loan application. While a typical bank loan can take weeks before giving you access to the funds, invoice financing companies can provide it in less than a day.

What are the disadvantages of Invoice Finance?

The main disadvantage of invoice finance is that you do not get access to the full value of the invoice because of invoice factoring costs. However, greater control over your cash flow and freeing yourself to do more productive tasks are often worth the offset.

Another downside is that the invoice factoring company will be in contact with your clients, making your clients aware that your business has used factoring finance. You also lose control over the collection strategies.

The above are valid concerns that can be mitigated when you choose to partner with a reputable invoice financing company that has your organisations best interests at heart.

Get in Touch

Speak to one of our experts on how Invoice Financing can help your small business today