Invoice Finance - Cashflow funding solutions
Easing cashflow
Invoice Finance, as the name suggests, is a method of cashflow funding that uses an invoice as the principal asset against which money can be raised.
Typically there are two kinds of Invoice Finance – Factoring and Invoice Discounting. The key differences between the two are:
Factoring
- Funds against invoices
- Full credit control, with or without bad debt protection
Invoice Discounting
- Funds against invoices
- Full credit control, with or without bad debt protection
- Can be confidential
How does it work?
Both kinds of Invoice Finance work on the same basic principle: the lender agrees to pay the business an agreed percentage of the invoice value – sometimes as much as 90% – as soon as that invoice is submitted, with the balance being payable when the invoice is settled in full. The lender makes their money by taking a service charge related to the size of each particular invoice.
With Factoring, as well as advancing the cash, the lender usually also assumes responsibility for managing the sales ledger. It therefore tends to suit those smaller businesses that might not have their own in-house finance resource, and where the weight of a third-party provider can assist in the collection of monies owed.
With Invoice Discounting, the facility can be confidential and the business maintains control over their sales ledger. Businesses that use Invoice Discounting tend to be larger firms with more [sophisticated] in-house teams.
What are the benefits of Invoice Finance?
Regardless of the method of Invoice Finance used, both have the same major advantage: businesses get immediate access to their cash, and positive cashflow makes for a successful business. It also allows the business’ finances to grow as the business grows, rather than being restricted by traditional methods of lending.
What would suit my business needs?
Factoring is suited for smaller companies, usually with a minimum turnover of £50,000, without a dedicated in-house credit department as it provides a payment collection service.
Invoice Discounting is suited towards the larger businesses, with a turnover of a £1million, who have a dedicated credit department.
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