Invoice Finance

Invoice finance is where a business unlocks money from their accounts receivable (unpaid invoices).  

Put simply, if you’re a business owner with money tied up in unpaid invoices who struggles to cover regular bills due to short term cashflow concerns, you can access cash from a lender using your unpaid invoices as collateral.  

Invoice finance tends to be associated with areas such as wholesale and construction, where clients may take some time to settle their outstanding bills. However, any business can use this type of finance, so long as they have eligible invoices in their sales ledger.  

One of the benefits of invoice finance is that, unlike traditional business loans, there’s no need to borrow against company assets or sign a personal guarantee.  

How does invoice finance work? 

Once a lender has approved an invoice for finance, they will advance you a percentage of its value (usually between 70 – 85%). You will receive the money in the bank and can use it to cover any cashflow gaps or fund a new project.  

Lenders will charge interest on the money you have borrowed and may charge an additional fee for their services. 

What’s the difference between invoice factoring and invoice discounting? 

Invoice factoring is where a lender effectively buys an invoice from your business. Once the invoice has been factored, it is up to the lender to collect payment from your customers. Your customers will be made aware when you use invoice factoring, because they will have direct communication with your lender.  

With invoice discounting, it’s up to you as a business to chase your customers for payment. If you don’t want your customers to know that you are borrowing money against their debt, invoice discounting could be the better option for you.  

With traditional forms of invoice factoring and discounting, lenders will expect you to continue financing your full sales ledger for a minimum period of time. If you want to avoid this level of commitment, you might want to try single invoice finance.  

What is single invoice finance? 

Single invoice finance, otherwise known as selective invoice finance or spot factoring, is where a business borrows money against individual invoices on a case by case basis. 

With single invoice finance, you can choose to borrow against one or multiple invoices, without being tied into a long-term contract.  Single invoice finance suits businesses that want to keep control of how much they borrow and when they borrow it.

What is bad debt protection? 

There is always a slim chance that your customers will become insolvent and unable to pay their bills, leading to bad debt (debt that is written off).  

One way to avoid bad debt is to run credit checks on your customers prior to working for them. That way you can set your payment terms for each customer based on their risk band and avoid any nasty surprises.  

If, despite credit checks, you still have concerns about running into bad debt, you can choose to take out bad debt protection as part of your invoice finance facility. With bad debt protection, you will get paid even if your customer becomes insolvent. The lender will also take care of the administration processes involved in writing off the debt.  

Is invoice finance right for me? 

Choosing to take on finance can feel like a big step for some business owners. But, done correctly, it can be an essential factor in the health and growth of your company.   

With firms waiting up to 90 days for debtors to repay them, invoice finance offers a handy way to cover cashflow gaps, ensuring you have access to a steady stream of credit. Unlike a traditional business loan, invoice financing doesn’t require additional security, meaning there’s no need to sign a personal guarantee or use your business’ assets as collateral.  

If you’re looking for a one-off cash injection to cover an unexpected bill or fund a new project, single invoice finance provides a fast and flexible solution. Giving you the freedom to choose which invoices you want to finance and when.