Run a business? Fed up of chasing your clients for payment? Need funds now, not in three months, when a big invoice you’ve just sent out is due to be settled?
Invoice financing can be the perfect solution for businesses in need of an immediate cash-flow fix.
But just what is invoice financing? And can it help your business?
Let’s find out…
Invoice financing involves a third party, such as a bank, buying your unpaid invoices off you or lending you money against the value of those invoices.
There are two main types: factoring, and invoice discounting.Factoring (or debt factoring), is when the bank (the invoice financier) actually collects money owed by your customers – meaning they will know you are using this type of funding.Invoice discounting is when the invoice financier lends you money against your unpaid invoices, but you continue to collect money from your customers. This money then goes towards paying off your loan. This is most suited to established companies with annual turnovers of at least £250,000.
In essence, invoice financing allows you to access funds you are due without waiting for your clients or customers to pay up.
In the short term, it can be a great way out of a cash-flow crisis.
In the longer term, it can be a useful tool to ensure things keep ticking along nicely even when clients fail to pay on time.
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How invoice finance works depends on the type of agreement you enter into:
With factoring, the invoice financier buys the debt owed to you by your customer, making a percentage of that amount – usually about 85% – available to you upfront. It then collects the debt directly from the customer and gives you the remaining balance once the money is in its account – all in return for a fee and interest charges.
*With invoice discounting, the financier loans you the money owed and you repay this loan as your customers pay their invoices. You remain responsible for collecting the invoice payments, meaning you can keep the finance agreement a secret from your customers. Once again, there are interest charges and a monthly fee for the service.
One simple, fast search will help you find the best factoring or invoice financing facility for your business. Get multiple finance providers to come to you with indicative offers that you can compare easily, saving you time and money.
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