What is Invoice Finance
Invoice finance is also known as invoice discounting, which is a method of funding by using invoices issued by your company as security. This kind of loan could advance up to 80% of the amount billed in the invoice your business has issued.
In a glance, invoice discounting is similar as debtor finance and factoring, which is another form of invoice finance. These types of financing methods do work the same way at the beginning. Both secure funds against the value of your invoices. However, in debtor finance and factoring the control over the debt management will be given to the lending company, which means debt collection, credit control, as well as other related procedures will be performed by the lender.
With invoice discounting, you have total control over your debt management, therefore you will have more freedom to control your own affairs. But of course this option is only suitable for companies that have good credit control. Generally, invoice discounting is only available o businesses that have a turnover of £100,000 or more, so mostly it’s not available for very small companies or start-ups. Furthermore, a good credit rating and trading history are also necessary to make sure that the company is really eligible for the loan.
Invoice finance is really helpful when a business is in need of quick funding. The best thing about it is the fact that the funds can be issued within 24 hours after there is an agreement between the borrower and the lender. So it could establish a more regular pattern of cash flow, furthermore, the business cash flow and growth rate could go in line with the sales rate. That is because you can only borrow as much as your invoices are worth, that also means that as the level of your sales increase, the amount that you can borrow also will increase.
When compared to other financing types, such as overdraft, company credit card, asset-backed loans, invoice finance is a great choice for companies that actually have good sales rate but still having trouble maintaining regular cash flow due to uncertainties of when their invoices will be paid.