If you regularly invoice customers and often find yourself waiting to be paid in order to maintain cash flow in your business, you could be eligible for something known as invoice finance. This is a way of borrowing money based on what your customers owe your business, and means you can access most of the cash immediately rather than waiting to be paid by the customer. A lender can advance you a large percentage of the value of the invoice immediately, which could help you in the running of your business.
Invoice finance is a helpful way to ease any potential cash flow problems, but it’s important to understand which option is right for your business, and to find the right lender to help. At Able Commercial Finance, we can search the market to find the right invoice finance provider to suit your business’ unique needs.
How does invoice finance work?
Rather than waiting weeks to be paid by your customers, invoice finance gives you access to payment faster, freeing up cash to use for other things within the business; like buying stock or investing in assets. However, there are two different types of invoice finance, and it’s crucial to understand each so that you can make an informed decision.
Invoice finance can provide a flexible option for your business and help to reduce the risk of any late payments. There are usually some basic requirements to be eligible for invoice finance, such as customer type and minimum turnover.
Before deciding invoice finance is the right choice for your business, let’s take a look at the two different types.
Invoice factoring, also known as debt factoring, usually involves a business selling its unpaid invoices to a third-party factoring company. The factoring company buys the invoices for a percentage of their value, and takes responsibility for collecting the payments. It is becoming a popular alternative funding type for businesses, and can help businesses who tend to experience longer payment terms with invoices.
Invoice factoring can reduce the time spent on chasing payments as the third-party will now be responsible for collecting the debt. However, it does mean the customer will know you are using this method, so keep that in mind when making your decision about your commercial finance opinions.
Invoice discounting can also enable businesses to gain immediate cash. You sell unpaid invoices to a lender, and they will give you a cash advance equal to a percentage of the invoice value. Once your customer has paid the invoice, the lender will then pay you the remaining balance, minus a fee.
This method is confidential and your customers will not know you are using a finance provider.
