Invoice Financing

Invoice financing is a method of borrowing funds against outstanding invoices due from your customers. It can help improve business performance by providing regular and flexible cash flow. Instant financing will enable you to reinvest in operations, and allows timely payment of salaries to staff and suppliers.

It also helps alleviate the frustrating waiting times when your clients delay paying invoices on time. Business financing provides an alternative source of funding that helps to resolve matters when dealing with difficult customers who pay invoices late (after terms).

It is a structured product which ensures your customers are unaware that your invoices are financed through an external source.

Invoice Factoring

Invoice factoring has become prominent in the last few years amongst UK businesses. Factoring is where a business sells its invoices to a third party and then the factoring company controls the sales ledger and collects the debts. The lender or factoring company pays back between 70% – 85% to you on outstanding invoices. Typically, invoice factoring allows you to receive payment quicker, in comparison to ordinary financial arrangements from banks and other financial organisations.

The process of invoice factoring:

  • Invoice your Customer
  • Factor your invoices
  • Receive between 70% - 85% of the invoice value
  • The Factoring company takes payment when customers pay your invoices
  • You will receive the balance after fees

Invoice Discounting

Invoice discounting is a similar product to invoice factoring, it’s a way of drawing money from your ledger against the invoices you have issued. However, the difference is that you will remain in control over the administration of your sales ledger.

The process of invoice discounting

  • Invoice your customer
  • Send invoices to the finance company
  • Finance company decides how much to lend based on your invoices
  • The Finance Company advances your funds
  • You pay the finance company the amount advanced and the fees

For and against the Invoice Financing

  • Instant access to cash.
  • Only make Repayments when the money comes In.
  • The factoring company handles your accounts receivable.
  • Invoices are secured against the funding received so your credit score won’t be hurt.
  • Reduce the risk of late payments and bad debts.
  • It can cost more than traditional financing.
  • You can damage your relationship with your client if you do not find the right company. As an example, a factoring company may prevent you from trading with your client because of your client’s bad credit scoring.
  • You may become reliant on invoice factoring, which could potentially harm your entity in long run.
  • Factoring companies do not accept invoices which are old.

Cashflow Financing

Cashflow financing is a form of funding where a loan is provided to you depending on your expected cashflow. Cash flow based loans consider a company’s cash flows in the underwriting of the loan terms, while asset-based loans consider balance sheet assets.

Cash flow-based lending allows companies to borrow money based on the projected future cash flows of a company via either short term or long-term agreements. These loan agreements are typically based on sufficient levels of Earnings Before Income Taxation, Debts and amortisation and as well as ability of managing interest as an expense.

Effective Credit Control

Whilst using invoice discounting is an effective way to maintain a regular cash flow, it is reliant on the basis that your customers pay your invoices to terms.

The use of effective credit control procedures and practises is imperative to ensure your customers pay you on time.

To ensure you maintain a regular cash-flow, you can choose to perform credit control duties inhouse or you can out-source your credit control duties to an external company.

Doing so will reduce your wait for payments, resolve queries, save you time and money.

To learn more about our fast and effective outsourced solutions, which will improve your cashflow quickly, click below to learn more or contact us today on 01494 422742.

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