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Business Finance Series – What is Invoice Finance? – Part 2

This is the second in a new blog series I started last week, talking all about invoice finance.

In last week’s blog, I asked and answered the question: “What is Invoice Finance?”

This week, I want to explain in more detail how invoice finance works.

How Invoice Finance Works?
Any funding solution that enables you, the business owner to inject much needed cash into your business is bound to be popular.

And so, it has proved with invoice finance.

Particularly over the last decade, invoice finance has become an increasingly popular and effective way of helping improve the cash flow needs within a business. So much so, that invoice finance has become a viable alternative to the more traditional option of a bank overdraft, and indeed often provides more flexibility.

Hence the popularity of invoice finance has exploded over the last 10-15 years, with finance providers now ranging from small independent lenders through to the large high street banks.

Consequently, there has never been so much choice for the business owner when it comes to raising invoice finance, and therefore it is important that you do your research and choose with care.

As I mentioned in last week’s blog, invoice finance lenders use the accounts receivable within a business as the security to provide much needed cash for such things as:

  • Growing the business
  • Providing additional working capital
  • Assisting with day-to-day cash flow requirements

Here’s how it works:

1. Invoice – You provide your goods or services to your customer, at which point you raise an invoice. The invoice includes details about the goods or services supplied as well as details of the amount that is due. In addition, the invoice provides details of the payment terms. These vary from business to business and can be anything from payment on delivery to payment in typically 30 days.

2. Cash Advance – Having raised the invoice and sent it to your customer for payment, you also provide a copy of the invoice to the lender from whom you are raising the invoice finance. The lender will then pay you a pre-arranged percentage of the face value of the invoice. This percentage can vary from 70% up to 95% of the value of the invoice. The level of funding against invoices is dependent on several factors the lender considers at the time of application. Funds are then paid directly to your business, with the funds arriving in your bank account normally within 24-48 hours.

3. Cash Flow – You now have the cash available within your business without having to wait for the invoice to be paid by your customer, with the result that you have the necessary cash flow to assist with anything from much needed working capital to reinvesting back into the business to help it thrive and grow.

4. Repayment – Depending on the type of invoice finance that you have, either you will carry out the credit control function in the normal way and ensure the invoice is paid. Alternatively, the lender providing the finance will take over the credit control function and liaise directly with your customer to ensure payment of the invoice. Once the invoice has been paid, you will receive the remaining value of the invoice which you didn’t receive initially, and this balancing amount will be paid less the service fees due to the lender in respect of the invoice finance facility.
It’s as simple as that!

Of course, the next question is: what are the different types of invoice finance available?

We’ll start to look at all the different options in next week’s blog. In the meantime, if you are currently experiencing cash flow problems within your business and want to talk to an expert, then email us at or give us a call on 020 8949 2122 and let’s see how we can help.