Invoice financing is another way of introducing working capital into the business.
It is where up to 90% of an invoice can be paid directly to the business as soon as it has been raised (within 24 hours). This can help significantly with the cashflow and growth of the business. Usually businesses have to wait for the invoice to be paid by the client at the standard 30-60 day period. However, invoice financing allows this to be paid much quicker. This is particularly useful when paying supplier invoices, as it gives you the opportunity to negotiate discounts more easily.
Invoice discounting is slightly different, in that the business manages its own credit control. Your credit controller receives the invoice, and a certain percentage of funds are made available. By releasing funds from your unpaid invoices, you can manage cash flow much more easily. Contact us today for further information, and a confidential service.
Our aim is to provide quality independent advice to clients, along with excellent customer service. From the start of your discussions, through any formal application process, right to the end.
I’ve been told that using this type of finance is a sign a business is struggling?
There used to be a line of thought that this was the finance of last resort and businesses only used ID or IF as they were struggling with cashflow. Time has however moved significantly, and this is no longer the case and almost the opposite is true, why would businesses not want to use someone else’s funds if they had a good debtor book and be able to have the cash paid the same day? Businesses who have wanted to achieve aggressive growth over shorter timeframes have used this to do just that and use the facility as and when injections of cash are needed.
It is also a good way to ensure you are dealing with credit worthy customers who have a good credit history, as a matter of course an Invoice Discounting lender will carry out due diligence on your customers and raise any concerns you may not have been aware of.
What are the differences between invoice financing and invoice discounting?
Both invoice discounting and invoice financing are solutions designed to help free up cash for companies that are solvent and operating well, but which could benefit from a cash injection. If there is a solid debtor book which can be across a number of sectors, businesses can have up to 90% of an invoice paid almost instantly. The remainder of the invoice is then paid when the invoice has been settled under the businesses standard terms i.e. after 30/60days.
There is a slight difference between Invoice factoring and discounting. Factoring means a business can effectively sell its ownership of specified invoices and its rights to the money due under its terms. The benefits of factoring are that a company can access cash much more quickly than they otherwise would if they were needed to wait until a debtor settled the amounts due which could be anywhere up to 90 days which can add pressure to cashflow.
Invoice Discounting has almost the same benefits as factoring and involves most of the same features but it is a confidential process, and so the businesses debtors are not aware that you are outsourcing payments for collection. Some businesses prefer this to be confidential, but in today’s world, using this type of finance can help a business to not only grow quicker if that is their plan, but to manage their cashflow much more effectively.
There is of course a cost to both facilities, and a business muct decide and work costs into budgets. The appeal and effect however of being able to draw on invoices almost instantly is a major attraction for cashflow, or the facility can be used as and when needed which will obviously be lower in costs.