Invoice Finance vs. Business Overdrafts

Unlike a business overdraft, invoice finance funding is based on the invoices you raise. As such, invoice finance (invoice factoring or invoice discounting) will grow with your business, without the need to go back to your bank to renegotiate your overdraft.

Invoice finance is thus a flexible and innovative alternative to more traditional funding methods, reflecting your company’s current position and not basing a decision on how it has performed in the past.

Benefits of invoice finance compared with an overdraft

• Invoice Finance will typically provide you with a larger upfront cash injection.
• The facility is linked to your sales (not your balance sheet) and will therefore grow with your business.
• Invoice Finance can be a cheaper alternative to a business overdraft.
• Financial planning is made easier, as agreements are for a fixed period and are not repayable on demand.
• With Factoring, you can outsource management of your entire sales ledger (should you so wish) saving you both time and costs.

Disadvantages of bank overdrafts

• The size of the overdraft facility will be linked to the capital in your business.
• Bank overdraft are usually set and renegotiated annually, based on the previous years financials.
• The bank reserves the right to demand that the overdraft be repaid at any time.
• Banks often seek third party guarantees to improve security.