What is Invoice Finance?
Invoice finance is a form of financing that provides cash upfront to businesses that sell goods and services on credit. Invoice finance can be used as a standalone form of financing or in conjunction with other forms of financing, such as term loans.
What are the different types of Invoice Financing?
Invoice Factoring
Factoring is a disclosed facility, meaning that your customers are aware of the factoring company’s involvement.
There will be an assignment notice on each invoice (‘this invoice belongs to ABC Factoring Company’), and the factoring company will also do your credit control. Factoring is ideal for start up and small businesses who’s director’s don’t have time to do all of the chasing of debts, nor regular updating of their accounts package.
Confidential Invoice Discounting
Confidential Invoice Discounting (“CID”) is confidential. However, don’t fall into the trap of thinking nobody will ever know.
Almost all lenders will take a Debenture (This gives them security over the invoices that they are financing), so this will appear on a companies house search against your company. CID is ‘confidential’ since there is no credit control performed by the lender, and there is no assignment notice on the invoices. It’s less intrusive than factoring as you get to retain all of your client relationships. CID is typically (but not exclusively) for more established businesses with a robust back office in place.
Spot Factoring
A newer concept in invoice finance. This gives businesses the ability to pick and choose specific invoices and customers to finance. This is often for businesses with a short term need for funding. If you require ongoing cash flow support, it will invariably be cheaper (but less flexible) to use a ‘whole turnover’ facility. Other benefits of spot factoring are largely around security. It is often not necessary to pledge a Personal Guarantee, nor the company provide a debenture.
What are the benefits of Invoice Financing?
Immediate access to cash 💷
Get immediate access to cash against your unpaid invoices, often without long contracts and at great rates.
Business Growth 🌱
Every business needs a steady cash flow to be able to grow. Invoice finance allows business owners to concentrate on obtaining new customers instead of chasing debtors. It also allows the business to pay its suppliers- thus avoiding any supply chain constraints.
Reduced risk of late payments 😎
Late payments from customers can negatively impact a business. Invoice finance helps eradicate this risk by doing credit checks on your debtors. Also, they often take out insurance against non-payments.
No set repayments 💸
Invoice finance facilities are ‘revolving’ meaning that they are constantly being drawn down from and repaid as invoices are assigned to the lender and paid by your debtors. This allows much greater flexibility than a loan (which has fixed repayments).
Feel better about big projects 🙌
Big projects can be very costly and, it can be a long process to the payment due to its time to complete. Invoice financing makes it more comfortable for businesses to take on larger contracts without getting stretched too thin.
How do I set up Invoice Financing for my Business?
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.
