Invoice financing is a funding solution for businesses that need to manage their cash flow. This type of financing is particularly useful for companies that have outstanding invoices but are experiencing a cash crunch.
Invoice financing allows businesses to generate money against their unpaid invoices to a third-party financial institution, called a factor. The factor will then advance a percentage of the value of the invoices to the business, typically between 70-90%. The factor will then take responsibility for collecting the outstanding payments from the clients, and once the payments are received, they will return the remaining balance to the business, minus a fee for their services.
There are two main types of invoice finance:
Factoring
This allows businesses to generate money against unpaid invoices.
The finance provider will lend you up to 90% of the value of your invoices.
It will also manage your sales ledger and collect payment for your invoices direct from your customers.
It will then deduct the costs of the factoring service, before paying you the remaining balance.
Invoice discounting
This works in a similar way to factoring, but your business keeps control of customer payments.
You pay a fee and a discount charge (like interest) if you use the funding, much like a standard overdraft.
Invoice financing is particularly useful for small and medium-sized enterprises (SMEs) that don’t have access to traditional bank loans or overdrafts. It can help them to manage their cash flow, meet their financial obligations, and even take advantage of new business opportunities.
Another advantage of invoice financing is that it can help businesses to maintain control over their accounts receivable. Unlike traditional bank loans, which often require businesses to pledge all their assets as security, invoice financing allows businesses to retain ownership of their invoices and maintain their relationships with their clients.
In conclusion, invoice financing is a useful funding solution for businesses that need to manage their cash flow. It allows businesses to sell their unpaid invoices to a third-party financial institution, which then advances them a percentage of the value of the invoices. Invoice financing can help SMEs to access funding quickly and easily, maintain control over their debtors, and take advantage of new business opportunities.
To see if Invoice Finance can help your business contact me at 07988 794746
