Invoice Finance – is it right for you?

If you sell goods or services to another business then invoice finance is probably something you’re already familiar with.

Your bank may have recommended it to you or an associate mentioned that they’ve had experience of it.  Sadly, there is still quite a bit of negative press around invoice finance but despite this, it remains as one of the most popular alternative finance options with over 45,000 UK business using it to support their cashflow.

Why Is It So Popular?

Invoice Finance is popular because it allows a company to release cash tied up in unpaid invoices.  It’s simple really…more and more companies demand longer payment terms and businesses find themselves waiting for anything up to 120 days for invoices to be settled.  Long payment terms even though pre agreed, put a huge squeeze on cash flow and make forecasting and budgeting extremely difficult, which is why releasing that cash at the point of invoice is so beneficial. Invoice Finance has some appealing benefits:

  • Gets you the cash you are owed as soon as you invoice for it
  • Enables you to budget more effectively
  • Can save you time spent chasing payment – free you to focus on cash generative tasks
  • Reputable firms tend to have excellent tech based solutions allowing you to manage your facility draw down instantly and with ease

How Does It Work?

You provide goods or services, agree payment terms and raise an invoice

Once invoiced, you notify your chosen provider who will release typically 85% of the value of the invoice to you.

The remaining 15% you receive when the original invoice has been paid in full by the client.

What Does It Cost?

Costs vary depending on product and provider but there are two fees to consider:

Service Charge – this is a monthly fee based on turnover of the business which pays for the facility and for other administrative costs associated with it

Discount Charge – this is the interest you will pay for borrowing the money over a given period of time

Food For Thought

If you have noticed that new clients require longer terms than you’re used to or more of your time is being spent re negotiating payment terms with existing clients, now is the time to talk to a provider about the options available to you.  As with all things – shop around; learn as much as you can before signing on the dotted line and question everything to make sure you’re getting the right deal for your business.  In some instances, a provider might need to put a charge against the business which depending on your long-term plans, might not be suitable and remember, it’s not always the cheapest provider that is best.  Often, it’s the speed and simplicity with which they work, the amount of cash they can raise and the amount of time they will save you that holds most value.