Invoice Finance and Invoice Factoring Explained



How does Invoice Finance Work ?

Cash is advanced to your organization via an invoice finance company. This is leveraged against the businesses outstanding invoices. It provides a practical way to direct funds into your business quickly.

Invoice financing effectively advances you the majority of the invoice value. Typically a client could expect to get in excess of 80% of the total. The business would then receive the majority of the remaining balance at a later date, when your customer settles the invoice.

It’s a great way to support your growing business and avoid cash flow difficulties by accessing your debtors.

Will I be accepted ?

Usually the criteria is that any organisation with a business to business model can be considered for invoice financing. As long as they have outstanding invoices due for collection.

Lenders tend to focus on whether or not it is practical for them to finance your invoices. Revenue, age of company and profitability (whilst important) tend to be secondary. This is because legally the collateral for the loan is the actual invoice you send to your client.

Most clients meet the below criteria…..

 Invoice Finance Bullets 2

How much Invoice Financing can I get ?

Generally speaking the total amount you can qualify for depends on how much your invoices are worth as well as their quality.

Your credit score is also taken into consideration with many lenders and invoice financing companies ideally seeking to see a clear credit report before a decision is made.

What documents do I need ?

See the below list as an example of what may be required for an application…..

Invoice Finance - Documents

What are the benefits of Invoice Financing ?

It is a frustrating reality for most businesses that invoices will often not be paid on time. Just waiting the usual 30 or 60 day terms can be bad enough but delayed payments can bring a whole host of problems.

When payments are late you can’t channel the working capital back into the company straight away.

It a common problem for small businesses that can be solved with accounts receivable financing. With this service you don’t need to wait to get paid. You receive money for invoices straight away.

Cash Flow Problems and Invoice Financing.

The ability to guarantee funds for invoices straight away is a powerful tool for businesses. Whilst Invoice financing (or accounts receivable financing) can sometimes work out as quite an expensive way to fund your business activity, it gives you a more predictable cash flow.

Often, particularly small and growing businesses will require urgent capital or need to cover recurring expenses like payroll and taxation. Capital may even be required for expansion or a new project.

Invoice Financing can lighten the load with a reliable flow of cash into a company. Ultimately it gives owners and directors peace of mind so they can concentrate on business fundamentals.

Whats the difference between Invoice Finance vs Invoice Factoring ?

You may have heard of both of these as potential solutions to help business owners deal with cash flow problems. While both can help they are not the same thing.

Invoice Finance

Invoice Financing essentially works by you borrowing money against your outstanding invoices or accounts receivables. You, the business gets cash straight away with a commitment to pay the lender back plus fees and interest, when your client settles.

The key here is that your business still has the responsibility to collect any owed money from the client.

It’s best for businesses that need the money quickly but are also confident in collecting the invoice that is owed.

Invoice Factoring

Invoice Factoring is a little different. The lender will ‘buy’ the outstanding invoices that are owed. They then take responsibility for the collection of these invoices.

The lender will first pay you a percentage of the total due invoice. Then once they have collected the complete balance they will pay you this minus an agreed percentage fee for the invoice factoring service.

The key here is that your client will be dealing with an invoice factoring company to pay their bills. Not you.

Invoice Factoring can benefit businesses that may be dealing with long payment terms, i.e 90 days. It’s also good for those who do not want to be recovering invoices by themselves.

Also you have to be okay with what’s essentially a third party dealing with your customer.

For more information on commercial invoice finance and invoice factoring  please visit here.

What do I do next ?

We have many years experience in working with clients and Invoice Finance providers. We have the knowledge to tailor a package to meet clients longer term growth ambitions for their businesses.  This expertise ensures the Invoice Finance facility is correct from day 1.

This is not only true for new to Invoice Finance clients but also clients who are looking around if the current provider does not meet their needs.

Here at Shortform via our broker contact with access to Invoice Finance providers there is a solution out there.

Please feel free to contact by telephone or the online enquiry form and we can guide you through the process.