Invoice Factoring Explained

Invoice financing, also referred to as invoice factoring, is a type of debt financing that allows businesses to borrow money against their outstanding invoices. This can be a useful option for businesses who are looking for quick and easy access to capital, as it does not usually require the same level of paperwork and due diligence as traditional loans.

This type of financing can be a great option for businesses who are experiencing short-term cash flow problems, as it can provide them with the liquidity they need to cover their expenses. It can also be helpful for businesses who are looking to expand their operations, as it can free up much-needed funds in a significantly shorter timeframe than a bank loan, allowing your business to maximise seasonal opportunities, or react quickly to market demands. 

How does it work?

Invoice financing is usually conducted in one of two ways. The first method (referred to as factoring) involves the use of a 'factoring company' to act as credit control that communicates directly with your customers/clients. The second method (referred to as confidential invoice discounting - CID) works to the same result as invoice financing, where your business gets cash against unpaid invoices as soon as possible from an invoice finance company - without your clients or customers being made aware of it.

In both cases, the invoice finance company will either lend your business a  value of the outstanding invoices (typically up to 90%) for a fee.  The fees vary considerably depending on a number of things including: what your business does, what your business turnover is, its sector, the balance sheet strength of your business, the credit rating of your customers etc.

In order to take advantage of invoice financing, a business will first need to find a factoring company to work with. Redwood Business Finance aid in the navigation of factoring companies, and through our detailed knowledge of the market we know which lenders are more suited to certain businesses than other, therefore we can help in choosing the most appropriate finance lender for your business. All lenders differ in terms of pricing, payment windows, credit acceptance and levels of service provided to individual customers, therefore, selecting the right one to best suit the needs of your business requires more than just blind luck.

Redwood Business Finance offers a free, no-obligation factoring health check to all UK businesses seeking invoice financing. This will help identify the funding options available to your business and provide an indicative quote for the level of finance required.

If you're considering Invoice Financing for your business and want to speak with a member of our friendly team about your options, then call us on 01202 030387 or you can fill out our contact form, and a member of our team will be in touch.