Why invoice finance means you don’t have to wait 90 days to get paid…..
What is Invoice Finance?
Very simply it is a lender advancing the cash you are due to receive from the invoices your customers have yet to pay.
That means you no longer must wait the 30 to 120 days you have agreed with your customers before receiving payment.
Of course, the result is a much-improved cash flow position for your business, because you are no longer having to wait for the invoice to be paid, instead you can raise finance to inject into your business by raising finance against the invoice the minute that invoice is issued.
Invoice finance is become an increasingly effective way of helping with cashflow and is an attractive and often more flexible alternative to the traditional bank overdraft facility.
How does Invoice Finance work?
Invoice finance lenders provide you with the cash you need to grow your business. Here’s how it works:
- Invoice – You raise an invoice with your customer. The invoice includes details of how much the invoice is for as well as details of the payment terms – in other words how many days to pay the invoice.
- Cash Advance – Because you have an invoice facility in place, you simply send a copy of the invoice to the lender providing the invoice finance facility. They will then pay you a pre-arranged percentage of the invoice’s value, normally within 24 hours.
- Cash Flow – You now have the cash available within your business without having to wait for the invoice to be paid by your customer. This means you have the cash flow you need to assist with working capital or to reinvest back into the business to help it thrive and grow.
- Repayment – Once you have sent the invoice to the lender and received the cash there is little else for you to do. The lender will collect the payment from your customer at the previously agreed date and send you the remaining value of the invoice which you didn’t initially receive, minus any pre-arranged fees to the lender.
This type of invoice finance is called factoring. The alternative is confidential invoice finance. The difference is that with factoring, the lender collects the payment on the invoice directly from your customer.
The alternative is that they collect payment, but under your business’ name, thereby keeping the facility ‘confidential’ from your customer.
The other alternative is that you collect the payment yourself which may be a more suitable alternative but your business must have an established and effective in-house credit collection process in place.
Invoice finance is a great way to raise funding and so release cash into the business. As an alternative to an overdraft facility, it offers excellent flexibility.
Invoice finance uses an asset in your business, namely your debtor book, and enables you to raise funding against it for working capital requirements or so you can grow and develop the business.
And these days, lenders are offering even more flexibility when it comes to invoice finance.
Whilst many businesses want an ongoing invoice finance facility, there are other businesses who only want to raise invoice finance on an occasional basis.
Should this be the case, there are invoice finance facilities available where you only raise finance on an invoice-by-invoice basis to suit your requirements and at times when you have specific cash flow needs within the business.
StartUps UK is a great business resource and this article provides more information to help you understand more of what invoice finance entails. Go here to find out more:
https://startups.co.uk/all-you-need-to-know-about-invoice-financing/
At Funding Track, we would be delighted to help you with your invoice finance needs. Give us a call on 020 8949 2122 or alternatively send us an email at keith.park@fundingtrack.com
