How Expensive is Invoice Finance?
Invoice finance is a financial tool that can be a lifesaver for businesses of all sizes, but how expensive is invoice finance? This type of funding allows a business to access the cash tied up in its outstanding invoices, improving cash flow by providing the freedom to invest in growth. However, some business owners are hesitant to use invoice finance because they worry about the cost. “How much does invoice finance cost” is one of the most searched for terms surrounding this topic.
Key Takeaways Within This Blog
- Invoice finance is an alternative funding solution that helps businesses improve their cash flow.
- The cost of invoice finance is typically expressed as a factor rate.
- The benefits of invoice finance include improved cash flow, increased growth, reduced risk of bad debt, improved customer relationships, flexibility, and access to capital.
- The cost of invoice finance is a small price to pay when compared to the benefits it can provide.
Understanding the Cost of Invoice Finance.
The cost of invoice finance is typically expressed as a factor rate. This is a percentage of the invoice value that the finance company charges for its services. The factor rate will vary depending on a number of factors, including:
- The size of your business.
- Your credit history.
- The age of your debtors.
- The creditworthiness of your debtors.
- The value of your invoices.
- The type of invoice finance you choose (invoice discounting or factoring).
Put the Cost of Invoice Finance into Perspective
When you compare the cost of invoice finance to the benefits it can provide, it becomes clear that it is a reasonable price to pay. In fact, invoice finance is a very cost-effective way to improve your cash flow and grow your business.
To put the cost of invoice finance into perspective, let’s consider a £10,000 invoice. Typically, an invoice finance provider advances 80-90% of the invoice value. In this example, we’ll use 80%, meaning you could access £8,000 upfront (minus a service fee).
Once your client pays the invoice, additional costs are deducted before you receive the final amount. These include a discount charge based on the advanced sum and its duration.
Assuming a 1% service fee and a 3% discount fee (above base rate), and you withdraw £5,000, with the invoice paid in 30 days, the breakdown looks like this:
- Invoice Value: £10,000
- Service Fee (1%): £100
- Fundable Amount (80% of revised value): £7,920
- Advanced Amount: £5,000
- Discount Fee: £31.84 (calculated based on daily interest rate of 7.75%/365)
- Total Cost: £131.84 Net Amount Received: £9,868.16
Therefore, you would receive £9,868.16 from your £10,000 invoice after factoring fees.
In this scenario, the cost of invoice finance is £131.84. However, you have also improved your cash flow significantly. This cash injection into your business allows you to invest in growth and improve your profitability. The question shouldn’t really be how expensive is invoice finance? But how expensive is business without it?
What are the benefits?
While the cost of invoice finance should be considered, it’s important to weigh it against the benefits. Invoice finance can provide your business with several advantages, including:
Improved cash flow: Invoice finance can give you immediate access to up to 80% of the value of your outstanding invoices. This can help you to cover your operating costs, invest in new inventory or equipment, or take advantage of discounts from suppliers.
Increased growth: With improved cash flow, you can invest in growth initiatives such as marketing, sales, and product development. Invoice finance can help you to take advantage of new opportunities and reach your full potential.
Flexibility: Invoice finance is a flexible solution that can be tailored to the specific needs of your business. As the business grows, the funding amounts available also increase.
Access to capital: Invoice finance can help you to access capital even if you have a poor credit history or have been turned down by traditional lenders.
Reduced risk of bad debt (recourse factoring service): When you sell your invoices to a finance company, you are no longer responsible for collecting payment from your customers. This can help to reduce the risk of bad debt and improve your financial stability.
Improved customer relationships (Recourse Factoring service): By chasing late payments yourself, you can damage your relationships with customers. Invoice finance companies can handle the collections process for you, allowing you to focus on maintaining good relationships with your customers.
Invoice finance helps businesses of all sizes to improve their cash flow and grow. While there is a cost associated with invoice finance, it is important to weigh this against the benefits. In many cases, the cost of invoice finance is a small price to pay for the significant advantages it can provide.
Your Partner in Growth
At Partnership Invoice Finance, we’re committed to helping businesses unlock their growth potential. We provide flexible and tailored invoice finance solutions to businesses of all sizes, from start-ups to established SMEs.
What We Offer
Rapid Access to Cash: Receive up to 80% of your invoice value upfront, freeing up your working capital.
Improved Cash Flow: Boost your cash flow and reduce reliance on overdrafts and loans.
Accelerated Growth: Invest in new opportunities, expand your business, and hire new staff.
Expert Support: Benefit from our experienced team who will guide you through the process.
Tailored Solutions: Our flexible approach ensures that our services meet your specific needs.
Why Choose Partnership Invoice Finance?
Speed and Efficiency: We pride ourselves on our fast and efficient service.
Competitive Rates: Our rates are competitive.
Dedicated Account Manager: Your dedicated account manager will be on hand to support you.
Confidentiality: We treat your business information with the utmost confidentiality.
Peace of Mind: Our experienced team will handle your credit control and collections process with a personal approach.
Let's Partner for Growth
Ready to unlock your business’s potential? Contact us today to discuss your financial needs and explore how our invoice finance solutions can help you achieve your goals.
