Overdue invoices are one of the most common causes of cash flow issues for businesses. Waiting for payments can create financial strain, making it difficult to cover expenses, invest in growth, or seize new opportunities.
Fortunately, if you regularly invoice businesses, invoice finance could provide a fast and effective solution – and improve your cash flow almost immediately.
In this blog, we’re exploring what invoice finance is and how it can help businesses.
What is invoice finance?
Invoice finance is a way to release funds that are tied up in your sales ledger. You can sell your invoices to a third party, and they will pay you a percentage of the invoice’s worth (minus a service fee). This means you don’t have to wait for your customer to pay the invoice under your payment terms.
There are two main types of invoice finance:
- Invoice Factoring: After raising an invoice with your customer, send a copy of the invoice to your lender, who will pay you up to 90% of the invoice amount within 48-72 hours. When you factor invoices, you don’t have to do much more. The lender will collect the payment from your customer at the arranged date and send over the remaining value that you did not initially receive, minus the pre-arranged fees.
- Invoice Discounting: Invoice discounting works in the same way as invoice factoring; however, you maintain responsibility for your credit control. This is sometimes the preferred solution for businesses, as your customer will not be aware that you are using an invoice finance facility.
What are the benefits of invoice finance?
Invoice finance offers a range of benefits that can help businesses maintain steady cash flow and avoid financial strain, including:
- An injection of cash could avoid creditor action.
- Invoice finance is more flexible than business loans.
- Lenders’ decisions are made faster.
- Funds are usually received within 48-72 hours.
- You gain access to funds locked up in your sales ledger.
- It could assist you in becoming solvent.
- Helps reduce the risk of late payments.
- Factoring – the lender takes on your credit control responsibilities, allowing you to focus on growing your business.
Overall, invoice finance provides a flexible, fast, and effective way to manage cash flow, which is especially helpful if your business is facing financial strain.
How can My Insolvency help?
If your company is struggling financially, please get in touch with us on 0800 009 6106 to find out what your options are. It may be as simple as helping you to obtain the injection of cash you need to get you back on your feet.
