What is Invoice Finance and How Can It Save Your Business?

So, you’ve taken the huge jump and now you are successfully running your own business. However, maintaining a stable and healthy cash flow is proving to be a daily challenge. You may be finding that right now you have more outgoing expenses than cash coming in, this could be due to customers taking their time to pay their invoices or suppliers wanting their own settled. When you are having trouble with maintaining the cash flow of your company, it’s time to consider what type of financial solutions can help and work for you.

You’ve probably thought about, or already have approached, some of the more traditional lenders such as banks but been turned down. Banks often turn down small businesses or those with little previous track record for funding, which leaves many entrepreneurs thinking they don’t have any other solutions to help with their cash flow. However, this isn’t the case. The answer to your cash flow problems could just be invoice finance.

Many businesses don’t know about invoice financing or have misconceptions about the options available. Despite what people think, invoice finance is a safe and flexible way for small business to maintain their cash flow and stability to ensure that their business continues to flourish. In this blog, we will detail what invoice finance is, the benefits and how it can help save your business!

What is Invoice finance?

Invoice finance is a flexible and viable way to maintain positive cash flow without having to take on new debt, inflexible loans or pledge personal assets. It is a specific type of asset-based lending, that allows you to receive an advanced payment against the value of unpaid invoices. Simply put, the funder allows you access to an amount equal to a fixed percentage of your unpaid invoices (usually between 70% and 90% of the total) before they have been settled by your clients.

Contrary to widespread belief you retain 100% of the invoice value and only pay a small fee for the use of the facility – like you would any finance product.

Invoice finance is a tried and trusted way of helping businesses keep their cash flow healthy, with the ability to help the business grow. In the UK approximately 35,000 businesses regularly use invoice finance companies with some £27bn of funding available.

There are two main types of invoice finance:

Discounting (which can be disclosed or confidential)
Factoring (again can be confidential but is most often disclosed)

Discounting and Factoring are similar funding products, except with Factoring the provider takes over your credit control to ensure that invoices are paid when due.

Invoice Finance is a powerful alternative to traditional finance

In the past invoice factoring was used as a last resort finance solution for businesses who were struggling or had a poor credit score and couldn’t secure finance from more traditional lenders. Today it’s a completely different beast! Growing companies use it to manage their cash flow and outsource their credit control to a professional accredited funding company to free up their time for them to focus on the future and growth of their business.

When a business enters a factoring arrangement, whilst the funder is responsible for collecting payments from the customers themselves, they do not have any say in who you work with or which projects you take on. You still make all the critical business decisions and remain in full control of your business.

Is factoring flexible for small businesses?

In the past invoice factoring was very restrictive and expensive. Unfortunately, invoice factoring has a bad reputation dating back from the early 1980s but modern factoring is a world away from that. Gone are the days of being tied into exceptionally long, and difficult, contracts with expensive costs. Invoice factoring is now a recognised tool that small-medium businesses can use to manage their cash flow, grow their business, and outsource their credit control.

How does invoice finance work?

The process is pretty straightforward. With an invoice finance facility in place, every time your business raises an invoice for goods or services, the funder makes available an agreed percentage of the value of that invoice – you chose how much you take- and this is then paid straight into your account. Usually within a day. This means you’ll have typically 70%-90% of the invoice value immediately. The rest, minus a small fee, is available to you when your customer pays.

Choosing an invoice finance option is a wise and ideal choice for small-medium businesses selling to other businesses on credit terms. It …

provides access to cash without the business having to sell inventory or other assets to pay urgent bills at a time or price that may not be right.
is a far more flexible option than traditional borrowing- providing finance that grows as you do.
means you don’t have to provide additional personal collateral, which is often required when you take out loans from banks and other financial institutions.
has an application process and sanction for factoring with Partnership which is quicker than the Bank – typically a facility is agreed within 48 hours with the first drawdown of cash to you shortly after.
is an efficient and flexible way of borrowing money

In conclusion

Invoice finance is a great option for small-medium businesses that want financial stability and cash flow at their fingertips. Plus, why not let us take the pain out of your credit control. Partnership Invoice Finance has the experience and the expertise to fully advise you and manage your cash flow. All our plans are bespoke and tailored to suit each individual client’s needs.