Capital is essential for any business to not only survive, but grow to reach their full potential.
This is why when businesses experience cash flow issues it can be damaging to the day to day running of even the most basic of operations.
There are many different types of loans and financing avenues that a business can turn to when experiencing financial difficulties.
Invoice Financing however may be exactly what your business needs when looking to speed up the payment process.
Invoice Financing, also known as Invoice Factoring and Spot Factoring is a general term used to describe a range of asset-based loans.
A business will sell their invoices to a third party at a percentage of their value and receive funding within 24 to 48 hours, sometimes sooner.
Invoice Financing is primarily beneficial to businesses that are experiencing cash flow problems, particularly in relation to the slow payment of invoices.
Invoice Financing is currently unregulated in the UK so it is important that you read the terms and conditions of your agreement carefully, as with any other class of finance agreement.
Basic costs to pay for Invoice Financing will generally be:
Although one of the more accessible types of business loan, Invoice Financing does come with some eligibility criteria.
As briefly mentioned earlier, Invoice Financing is currently not regulated by the Financial Conduct Authority in the UK.
Although this shouldn't put you off as Invoice Financing is an extremely popular and safe method of accessing cash for your business, it would just be prudent to follow a check list:
Earlier it was mentioned that should your customers default on their payment(s), you may be responsible to chase up this payment but there will be some contracts where this will be on the responsibility of the lender.
Bad Debt Protection is a bolt on policy that will then place the sole responsibility of the lender to follow up on any defaulted payments.
If you work in a high-risk sector then this should be an essential part of your policy.
Despite being around for years, popularity of Invoice Financing soared after the 2008 financial crisis where banks took a more stringent approach to lending.
This saw the amount of new Invoice Financing polices increase by a third.
Since 2000, the Invoice Finance industry has grown by a staggering 368%, with lenders ranging from international banks to independent and local lenders in the UK.
In fact, between the years 2015-2020 there was an increase of 2.5% of the Invoice Financing industry which is already worth £3 billion.
If your business trades overseas you will no doubt already be aware of the difficulties that come with this.
Import Invoice Financing however can help make things a bit easier.
Paying for goods in advance will often be met with a time-delay which can have a severe impact on your business's finances.
Import Invoice Financing effectively speeds up the payment process by allowing the importer to raise the funds before they actually receive the goods.
Invoice Trading, also known as Peer-To-Peer lending allows for businesses to auction off their invoices to prospective buyers.
This is typically done online and is an effective way of quickly improving a poor cash flow situation.
If your business trades internationally then this can be particularly useful, as it allows for trade with foreign debtors.
Absolutely, many forms of business financing may not be suitable for a small/new business as lenders may require certain levels of credit and access to trading records whereas Invoice Financing is slightly different.
When assessing risk, lenders will look at the suitability of the company owing the invoices, not yours.
That's not to say that the standing of your business will not have an impact on the overall terms, but it is less of a factor.
Businesses with a stronger credit score and a more credible reputation can look forward to benefiting from much more favourable Invoice Financing terms.
Hopefully that's cleared up some questions that you may have regarding how invoice financing can help your business.
Now the last one you most likely have, is "how can I apply for invoice finance"?
Well, the process couldn't be simpler; all you have to do is click the "Start FREE QUOTE" button to start comparing prices.
This is an absolutely free service and there's no obligation to commit, so click the button, follow the prompts and get comparing now.