Get paid faster with invoice finance

Invoice finance is a way for businesses to release cash tied up in unpaid invoices for products or services they've provided. Instead of waiting for customers to settle their bills, businesses can partner with a finance provider, which advances a large portion of the outstanding invoice's value — often between 70% to 90%. This allows businesses to maintain a healthy cash flow, ensuring they have funds when needed, without having to wait for their clients to pay their invoices.

Imagine you have an invoice that's due in 60 days. Rather than waiting, you can approach an invoice finance provider, known as a factor. They will assess the invoice, and if approved, provide you with up to 90% of its value. Once the customer pays the invoice, you receive the remaining balance, minus any fees. Here’s a fictional example:

In order for a business to get approved for invoice financing, finance companies will consider certain aspects of your business. These could include:

• Creditworthiness of your customers: It's not just about your business's credit worthiness, the finance provider often evaluates the creditworthiness of your customers. They need to be confident that your clients can and will settle their invoices.

• Quality of invoices: The invoices should be free from legal disputes and not pledged as collateral elsewhere. They should be clear, precise, and for goods or services already delivered.

• Business history: While some providers cater to startups, many prefer businesses with a track record. It's about ensuring that your business operations are consistent and reliable.

• Volume of invoices: Some providers have minimum or maximum invoice amounts they're willing to finance. It's essential to match a provider with your business's invoicing volume.

• Positive Cash Flow: Demonstrating a positive cash flow can increase a lender's confidence in your business's ability to manage finances effectively.

• Documentation: Be prepared with essential documents like financial statements, list of outstanding invoices, company registration details, and details of directors or owners.

The type of financing you chose ultimately depends on what your business needs are Most business would typically choose invoice finance if they need to sustain cash flow. As explained earlier, you use your unpaid invoices to get immediate money instead of waiting for customers to pay. Asset finance is a way of leasing business assets such as machinery or office furniture. This way, you're not tied down by having to buy these assets, which can lose value or become outdated over time. It's less of a hassle, avoids extra costs, and you don't have to worry about investing money upfront or dealing with the risks of owning assets.

Essentially, it keeps your business nimble, allowing you to grab new opportunities without stressing your finances or getting stuck with fixed assets.

Invoice finance may not be the best option for many businesses. If you find that it might not work for you circumstances, you can consider other borrowing options:

Bank loans

Traditional bank loans involve borrowing a specific sum of money and paying it back with interest over a predetermined period. They offer fixed repayment terms, which can help with budgeting, and interest rates might be lower than some other financing options.

However, approval processes can be lengthy, and they often require collateral. There's also the potential for higher interest rates for smaller businesses with shorter credit histories.

Overdrafts

Overdrafts allow businesses to borrow money up to a certain limit through their bank accounts, providing flexibility. They're useful for short-term cash flow issues and only pay interest on the overdrawn amount. On the other hand, interest rates can be higher than traditional loans, and there's the potential for fees if you exceed the agreed limit.

Asset financing

This involves using company assets, like machinery or vehicles, as collateral for financing. It allows businesses to get financing based on the value of their assets, and it might be easier to obtain than unsecured loans. But there is the risk of losing the asset if repayments aren't met.