Are you tired of chasing outstanding payments? Discover what benefits of having an Invoice Finance facility can do to your cashflow:
The benefits of invoice finance are supporting numerous businesses across the UK with fast funds to boost their cash flow and help grow their business.
But like any financial facility, it’s not something business owners walk into without knowing the finer details.
So, read on to discover why invoice financing is an ideal solution for small businesses as we provide key definitions, benefits and the difference between invoice financing and factoring.
What is invoice finance?
Invoice finance enables businesses to receive cash from unpaid sales invoices, so they don’t have to wait to be paid by their clients. Waiting 30, 60 or even 90 days to get paid can certainly impact cashflow. With an invoice finance facility, the lender uses the outstanding invoice as security for funding to supply you with quick access to the funds for a small percentage of the overall amount.
Invoice financing works on a credit basis as an asset-based lending arrangement with the pending invoice as collateral. So, businesses essentially receive their owed funds for immediate cash flow requirements, whether that’s paying their employees or purchasing resources and general expenses.
How does invoice finance work?
As a process, invoice finance works in four simple stages:
- Invoice your clients as normal.
- Send a copy of the invoice to your lender.
- Receive up to 90% of the gross invoice value.
- Receive the remaining percentage minus your lender’s fees.
Some invoice finance lenders can also assist with credit control and even chase clients for any outstanding balances.
With the total sales of businesses using invoice financing up by 38% over the last couple of years, it’s clear to see why it’s a valuable financial service to many professionals across the UK.
What is the benefit of invoice finance?
Now we understand invoice financing in more detail, let’s take a look at a few of the advantages:
Fast funds
The number one advantage of invoice finance is receiving your funds quickly. Some lenders can guarantee you receive up to 90% of your invoice the very same day.
Boost your cash flow
Getting access to funds allows you to build your business rather than wait for the invoices to be paid until investing.
Free up your time
By receiving your funds quickly, you no longer need to chase invoices, send emails or do more admin tasks. So, with more time on your hands, you can focus your time on managing and growing your business.
Flexible options
Not all invoice financing services are the same. You can receive a custom approach with no long-term commitments that best serve your business.
Provides room for negotiation
The 0.2-3% you pay in lenders’ fees can potentially be earned back by receiving discounts from your suppliers. By paying your suppliers immediately, they might be more willing to provide their service at a discounted rate. Invoice finance can quite often pay for itself.
Remain confidential
Throughout the invoice financing process, you have the option to remain strictly confidential from your client by your lender. This type of facility is called Confidential Invoice Discounting (CID).
The benefits of invoice finance can be very suitable for small businesses running on tight budgets and deadlines.
Is invoice finance regulated?
Invoice finance is not currently regulated by the Financial Conduct Authority (FCA). However, this does not mean that other bodies do not regulate fair financial practices and processes, such as UK Finance.
What is the difference between invoice finance and factoring?
Think of invoice finance as the industry. Invoice factoring a a form of invoice finance that allows your businesses to receive funds for outstanding invoices. This form of invoice finance also includes the lender assisting with credit control.
Invoice factoring removes the inconvenience of chasing clients for payment and collections. The lender assists with such service, however with their involvement the facility is not kept confidential. If businesses require an invoice finance facility to be confidential, they must source another form of invoice finance called Confidential Invoice Discounting.
How do invoice finance lenders make money?
Typically, invoice financers make money by charging a small 0.2-3% fee on your sales invoice. For the price of producing 75-90% of your outstanding invoice in 24-48 hours, this small percentage can help benefit businesses to help make fast investments or avoid interest fees and further debt. Please note, although lenders could advance a business up to 90% of the invoice value, the remaining 10% is still payable to the business, but only after their client has paid the balance of the invoice.
Find a trusted invoice finance lender
At Contact Business Finance, we keep things simple for you. As a leading commercial finance brokerage company in the Midlands, we help support local businesses by connecting them with the most suitable lenders in the market.
Our invoice finance specialists can help guide your business every step of the way to ensure you get the best deal that suits your financial requirements.
So, if your clients never pay on time and your business needs quick cash to grow, speak to our team today to compare the market free of cost.