Having large amounts of cash tied up in outstanding invoices can significantly stall the growth of your business; impacting cash flow and creating problems for payroll. Invoice finance enables you to release the cash tied up in outstanding invoices, so you don’t have to wait weeks or months for payment.
Invoice finance is an asset-backed funding solution for businesses that regularly invoice customers. It offers a fast, flexible and convenient way to manage cashflow and get paid quickly for completed work. Rather than waiting for customers to settle an invoice, a lender will advance you a percentage of the invoice amount, usually within 24 hours. The remaining balance is paid to you on receipt of the customer’s payment.
With invoice factoring, you could access up to 85% of the cash tied up in outstanding invoices. Your invoices are effectively sold to a factoring company for an agreed amount. Unlike invoice discounting, your finance provider will take ownership of your credit control and ensure outstanding invoices are repaid on time. Having a factoring company to act as your credit controller removes the time-consuming task of chasing payments and allows you to focus on your business.
Rather than being charged a fixed APR for the cash advance, your factoring company will effectively buy your invoices at a discounted rate. They therefore take a percentage of each sale. The discount rate is based on the amount and value of the invoices processed each month. Typically, companies processing a small number of high value invoices will receive a more competitive rate than those issuing lots of small value invoices. You may also incur a service fee or standing charge based on your turnover.
It’s worth noting that invoice factoring is not necessarily confidential; many providers do not offer a white label service when speaking directly to your customers.
With invoice discounting, you could still unlock 85% of the cash tied up in unpaid invoices but you will be responsible for chasing the repayments. Invoice discounting is therefore completely confidential; as you manage your credit control, customers will not know that you are using this facility.
As with other forms of invoice finance, you sell your invoices to a finance provider. They will pay you a percentage of the value of the invoice as a cash advance, typically within 24 hours of receipt of the invoice. As an asset-backed form of finance, your lender uses the invoice as security against the advance. You will receive the remaining balance of the invoice minus your lender’s fee once your customer has paid the final amount.
Selective invoice finance works by a business selling individual invoices to a third-party funding provider to release tied-up funds. With invoice factoring and invoice discounting, companies are required to factor their entire sales ledger, which may prove challenging for small, seasonal businesses. With selective invoice finance, individual invoices can be factored as required based on cash flow needs. This is a funding-only solution; you are required to manage your credit control.
The percentage at which the funds are loaned is based on the value of the individual invoice. You may also be charged a service fee for using this service, which is based on your turnover.
Invoice finance offers an incredibly fast and flexible way to manage your cash flow. You can typically expect to release up to 85% of the funds tied up in your invoices within 24 hours. You can choose the best type of invoice finance for your business; you can sell one or multiple invoices and decide whether you or your finance provider will manage your credit control.
To find out for free if you qualify for invoice finance, please apply online now for a no obligation quotation.
To qualify for invoice finance, you must trade predominantly by invoicing other businesses for products and services. You must operate a UK-registered business with a turnover of at least £10,000.
If you do not meet these criteria, we can still help you access the finance you need! Learn more about our range of business finance options and how we can help you find the right funding solution for your business.