Everything you need to know about invoice finance

Our journey began with invoice finance back in 2011. Our CEO Anil Stocker co-founded MarketFinance – previously called MarketInvoice – to help small businesses with gaps in their cashflow that came about through lengthy payment terms. Waiting up to 90 days for their invoices to be paid but needing to pay a supplier upfront creates a massive strain, and back in 2011 many of these businesses were being ignored by banks following the financial crash.

While we helped to create more accessible invoice finance digitally for UK SMEs, it’s certainly nothing new. There’s evidence that it’s been a tool for thousands of years, with records showing a form of it was used by the Romans! It’s come a long way since then, so whether you’re a seasoned user or proactively researching funding options and stumbled across the term, we’ve put together a little refresher for invoice finance and its uses. Read on to find out everything you need to know.

What is invoice finance?

The simplest explanation is that invoice finance is a way of lending money against unpaid but already issued invoices. Essentially, it brings the cash you’re owed forward by trading an invoice for a percentage of its cash value. As a funding solution, it’s suitable for smaller cash flow issues (both short and longer term), rather than larger funding requirements. These would be better suited to a business loan.

How can a business use invoice finance?

While businesses have a variety of funding needs, the most common uses for an invoice finance facility are:

  • Employee wages – access to cash when you need it means your staff get paid on time, every time
  • One-off and unexpected costs – sudden bills don’t have to keep you up at night. Having an invoice finance facility in place helps you cover costs without the stress
  • Taking on new business – the right facility will help cover the upfront costs of taking on a new contract, making it less difficult to onboard new clients
  • Negotiating with suppliers – with the extra cash an invoice finance facility provides businesses have the opportunity to negotiate purchases based on scale and payment terms
  • Better terms for customers – a business that doesn’t rely on customer payments to access their funds is more appealing in the market. Longer payment terms mean customers can manage their own cash flow and that incentivises them to come to you
  • Managing seasonal demand – for businesses that have busier periods, for example, a Christmas rush, having the cash on hand to purchase extra stock in anticipation can make a huge difference. It also helps manage quieter moments when there are fewer incomings
  • To replace an existing facility – while some businesses may have an existing facility, invoice finance can be a great replacement for a facility that’s more restrictive, like an overdraft. Flexibility is key!
  • For growth – a facility like this is perfect for a business looking to expand. While the above reasons lean towards being reactive, proactively securing a fund to dip into will help cover the incremental costs of growing a business

Something important to remember: Since invoice finance is based on the value of the invoices a business issues, it’s only suitable for those that sell to other businesses. You can only use it if your business is B2B, but it’s a particularly useful tool to boost your working capital and get control over your finances.

How does invoice finance work?

To give you a better idea of invoice finance in action, let’s use an imaginary business. Socks’R’Us have secured the deal to provide official merchandise socks for the first Premier League fixture of the season. Great news! Now Socks’R’Us needs 500,000 pairs of socks from their supplier, who wants to be paid in 30 days. If they’re a new supplier, they may not give them any credit at all.

To make matters more difficult, the Premier League will only pay Socks’R’Us for the stock 45 days after the match finishes. Keep in mind, at that point they’ve had to source the socks, brand them, sell them and deliver them, all before the first whistle! So they’ll need to front the money within 30 days, but won’t get paid until 45 days after delivery. With such a large order, that’s a real financial pain for Socks’R’Us.

What can they do to ease this gap in their cash flow? They can come to a company like MarketFinance and apply to get up to 90% of that invoice paid on Day 1. That means they can pay their suppliers on time without depending on being paid by their buyer. They would receive the remaining 10% minus interest once the Premier League pays up after 45 days!

While there’s a small fee to use the facility, gaps in cash flow are filled and the business can now focus on working on their next projects, rather than worrying about these payments. What’s more, the account is set up, managed and secured by Socks’R’Us, who can now access funds faster.

At MarketFinance, we offer two subscription options so you have the flexibility to decide what suits your business best:

ANNUAL Our annual subscription is a more cost-effective option for businesses. Users pay a fixed monthly fee, signing up for 12 months minimum.

MONTHLY Our monthly rolling subscription is slightly more expensive month-to-month but offers businesses flexibility to cancel with 30 days' notice.

But is an invoice finance facility a good idea for businesses?

In short, yes (if you’re looking for a funding solution). Especially if you’re looking for something with less commitment than a business loan, that can be accessed on your terms.

The key positives an invoice finance facility provides are:

  • Control: you choose which invoices to fund, and when. The power is in your hands!
  • Transparency: No hidden fees and no disbursement charges. The price is confirmed with you before you trade an invoice
  • Simplicity: Everything happens 100% online using technology-driven finance. The systems are user-friendly and integrate with major business accountancy software platforms. Even better, it’s backed up by our incredible customer service team
  • Flexibility: You maintain 100% control of your ledger - no hidden obstacles
  • Speed: Your account can be set up within 48 hours, with capital advanced on the same day

Invoice finance can be an ideal solution for start-ups and B2B businesses that need to purchase materials or stock to fulfil an order. At MarketFinance, the application process can be completed in minutes and once checks are complete, you’ll get an advance of up to 90% within 24 hours. These amounts are based on existing invoices, so there’s flexibility when deciding how much you need and when. This makes it easy for you to remain in control of your finances without over-borrowing.

How can I start using an invoice finance facility?

Whether you're responding to a gap in finances or looking to cover yourself for the future, our invoice finance team is here to help. Head to our application portal to get started.