There are two types of invoice finance available ‘Invoice Factoring’ and ‘Invoice Discounting’.
Both are available to businesses that sell goods or service on a business to business basis, but not business to consumer.
This enables a company to receive up to 90% of the invoice value shortly after it is issued. Evidence must be provided in the way of delivery note for goods or a timesheet for a service, but the business will then have the working capital that could have been tied up for 30 days or longer.
The factoring company will then be responsible for collecting payment for the invoice and once paid they will pay you the remaining percentage less any fees, effectively providing you with a credit control and sales ledger management service.
Invoice Discounting is similar to factoring but here the business itself remains responsible for obtaining payment of the invoice, not the funding provider. Once payment is received the funding provider is repaid the advance plus any fees.
This provides your business with a more confidential facility, as customers will not be aware that an invoice finance facility is being used.
- Quick – funds available within 24 hours of issuing the invoice.
- Available to start-up businesses.
- No assets needed other than invoices.
- Useful to bridge gaps in cash flow.
- Scalable funding, funding grows with turnover.
- Availability of funding will reduce if there is a decline of sales.
- May not be suitable for all business sectors
- Costs – more expensive than a bank overdraft.
With so many different types of funding available and such a wide variety of providers, it’s crucial that you seek independent professional guidance on the correct product and lender for your business’s needs.
Wayne Mackenzie - Office Manager
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