Invoice finance, is a business finance option that is gaining popularity in the business world because of its flexibility. Invoice finance includes factoring and discounting and is in effect a revolving loan, because you borrow money against invoices which are then paid off which allows you to continue to borrow against new invoices.
Invoice finance, is a more effective borrowing option than the traditional methods of lending like loans, as you are only borrowing the money that you are actually owed.
The greatest benefit of Invoice Finance is that instead of waiting 30 to 90 days for your customers to pay you, the invoicing finance company can often pay you up to 95% of the invoice value within 24 hours of you raising the invoice.
Invoice finance includes Factoring and Discounting, and both these options work in a similar way. The main difference is that with factoring the invoice finance company collects the payments from your customers for you and manages your sales ledger, and credit control, whereas with discounting you do this yourself.
Because of the differences, factoring and discounting suit different types of businesses, factoring being more appropriate for smaller businesses that don’t have the time to manage the payment collection. By using factoring, smaller companies not only boost their working capital but also benefit from the extra time and resources saved which can be used to develop and grow the business.
Invoice finance works by unlocking the money that is tied up in a businesses sales ledger, by paying you the money that your customers owe you within 24 hours of you raising the invoice, instead of you having to wait 30 to 90 days to collect it from your customers. When your customers do finally pay, your loan is then paid off minus a small charge.
The charges and exact process varies depending on the lender, however the basic process is the same. You get what you are owed quickly!
The advantages of invoice finance include: