1) Invoice finance in a nutshell
This type of finance uses invoices as a way for businesses to unlock cash tied up invoices and therefore speeding up cash flow. This is done by selling their invoices to a third party who will advance some of the funds the invoice is worth up front, for a cut of the invoice.
1) Also known as...
3) How invoice finance works
- You provide the goods/services to your customer and invoice them
- You send the invoice details to the invoice finance provider
- A percentage of the face value of the invoice is paid to you, usually within 48 hours (different factoring companies will advance different percentages % depending on their own risk criteria)
- Depending on the type of invoice finance, either you carry out payment chasing as normal or the invoice finance provider will take control of this part of your client relationship for you
- When your debtor pays, the remainder of the invoice that you didn’t receive earlier is paid back to you – less a service fee
4) Advantages of invoice finance
The obvious advantage of invoice finance is being paid the majority of an invoice within 48 hours, instead of waiting 30+ days, thus helping businesses manage their cash flow.
Another significant advantage is that invoice finance gives businesses a way to fund their growth without taking on extra liabilities or debt, as with a business loan, and using assets they already have. See our page on invoice finance vs business loans here.
5) Things to consider
It’s important to look into the different types of invoice finance what suits your business. For example, you may have to put your whole ledger through the invoice finance provider but want to only finance a few invoices or customers. Or you may want to do whole ledger and access more money.
Another consideration is credit control. Some invoice finance providers will insist on managing credit control themselves which could damage your customer relationships.
As mentioned, these things are specific to the types of invoice finance so make sure you know which one it is that you want and what each offer.
6) Next steps
MarketFinance's invoice finance offering
It’s quick and easy to access funds, which means you can get the cash flow you need to get on with business. With MarketFinance, you get:
- Fast funding: quick funding decisions and set-up
- Hassle free experience: easy to use digital interface
- Help in real-time: personal customer support
- Straightforward costs: no hidden fees
- What is working capital finance?
- What is Purchase Order finance?
- What is trade finance?
- What is import finance?
- What is receivables finance?
- What is asset lending?
- What is asset finance?
- What is export finance?
- What is transport finance?
- What is recruitment finance?
- What is manufacturing finance?
- What is invoice finance
- What is factoring?
- What is spot factoring?
- What is invoice trading?
- What is invoice discounting?
- What is selective invoice discounting?
- Factoring vs invoice discounting
- The advantages and disadvantages of debt factoring
- How to compare factoring companies
- Invoice finance vs overdrafts
- Invoice finance vs business credit cards
- What is a debenture?
- What is working capital?
- What is peer-to-peer, crowdfunding and alternative finance?
- What is the Peer-to-Peer Finance Association?
- How to deal with late payment
- Top tips to improve cash flow