We all know that for businesses, cash is king. Having money in the tank to help you keep going and growing is how you survive. Slow paying clients and seasonal demand can really put a spanner in the works, but the right financial tools can protect you by boosting your working capital.

Invoice finance is used by lots of businesses to fast track the money they’re owed when they need it. But what is it? Here we’ll be focusing on invoice discounting specifically, which is the type of invoice finance we specialise in at MarketFinance.

To give you a better picture of how this handy financial tool could help your business, we’ll be answering the following questions:

What is invoice finance?

A huge frustration for many businesses is knowing that they’re owed money for completed work, but having to wait to actually get their hands on it. Sometimes it can take 30, 60 or even 90 days for clients to pay up.

But your invoices are an asset. They represent money coming into your business and could hold the key to unlocking your cash flow – especially when you can tap into them on your own terms.

Invoice finance allows you to do just that. It offers you an advance against your outstanding invoices that you’ve issued for completed work. You get up to 90% of the cash you’re owed upfront, and pay a fee to the finance provider.

At MarketFinance we have two invoice finance solutions. You can choose between:

  • Pay-as-you-go – pick and choose which invoices to finance as and when you need to access the cash. It’s a super flexible option that’s great for one-off or seasonal needs
  • Subscription – you pay a fixed monthly fee to fund as many invoices as you like. It’s a cost-effective option that’s great for businesses that need ongoing or regular funding Some providers also offer whole-ledger facilities where you can get funding against all of your outstanding invoices.

Ultimately, having full choice over how many invoices you finance means that if you only have one or two slow-paying customers then you can use your facility to take care of their invoices exclusively. Likewise, if you have one main customer who generates a lot of revenue for you then you could only use it only for theirs. That way you’ll always have quick and easy access to a certain amount of cash.

How is invoice finance different to factoring?

It can be easy to confuse invoice finance with invoice factoring. They’re not exactly worlds apart but there are a few crucial differences. These are mainly in terms of how much control you have over your customer relationships and ledger.

With invoice factoring, a lender offers you finance based on a percentage of your entire sales ledger, which they then legally own. They’ll take full control in managing your debtors (including chasing late payments), and can even credit check potential customers. This level of involvement and direct communication means your customers will be aware you’re using this form of finance.

Over the past decade, invoice finance has become increasingly more popular than invoice factoring among small businesses. Here’s why:

  • It’s more affordable
  • You have greater flexibility over which invoices to fund and when
  • You don’t have to finance your entire sales ledger
  • You have more control over managing your customer relationships (and won’t have a lender chasing their payments on your behalf)
  • You don’t get locked into contracts with hidden fees

How does invoice finance work at MarketFinance?

  1. You complete work for your client and send them an invoice – typically this will have payment terms of 30 to 120 days
  2. You upload the invoice to our platform – we’ll check that your invoice and the client are both legitimate (this is very discreet)
  3. We’ll advance you a percentage of the face value of that invoice – you can spend that cash as and when you need to
  4. Your customer pays their invoice (this goes to a linked trust account)
  5. We take off what we’ve already advanced to you, plus any fees and interest owed – for example, with MarketFinance pay-as-you-go invoice finance you’ll pay a service fee (a percentage of the invoice face value), a discount fee (the interest based on the funds you’ve accessed), and £15 to cover the CHAPS payment. Our subscription option has a fixed monthly fee for you to use the facility, and then you’ll pay a discount fee and the £15 CHAPS payments for each invoice you fund
  6. You get whatever’s left of the invoice face value

What do businesses use invoice finance for?

By its nature, invoice finance works for businesses that sell to other businesses. It’s a really useful way to take control of your finances and know when you’re going to get paid. So if you sell to businesses then it’s a great tool to give your working capital a boost.

A lot of businesses use invoice finance because it’s a quick and easy solution. Here are some of the most common costs a facility is used to manage:

  • Staff wages – you can make sure your team is always paid on time
  • Negotiating better rates with your own suppliers – the extra financial firepower that invoice finance offers you means you can negotiate purchases based on scale and payment terms
  • Offering better credit terms for your customers – if you know that you can access cash instantly, you can offer your customers longer payment terms to help them manage their own cash flow and incentivise them to use you
  • Managing seasonal demand – use the cash to purchase extra stock to get ready for a period of high demand (or manage the quieter times)
  • One-off and unexpected costs – a surprise bill doesn’t have to be a disaster if you have a facility in place to dip into and cover the cost
  • Taking on new business – don’t be held back by a lack of resources! The right facility will let you take on a new contract and cover the upfront costs

Fast track the cash you’re owed

Invoice finance is a fast and reliable way to manage your working capital by advancing the money your customers already owe you. You won’t be giving away any equity in your business and funds are only secured against your invoices.

If you’d like to find out more about our invoice finance options then head to our website and get in touch today!