As a business owner, waiting for clients to pay invoices can be stressful, particularly if cash flow is tight.

But did you know you may be able to get access to the money you are owed, before the invoice is paid? It’s called invoice financing and it’s a useful alternative to a traditional business loan.

Invoice financing can be used to pay staff or suppliers, cover you during slower months or to grow your business.

 

How it works

There are two common types of invoice financing – invoice factoring and invoice discounting.

What is invoice factoring?

With this option, you invoice your customers then sell the outstanding invoices to a third party (the factor).

The factor gives you a percentage of the value of the invoice and the customer pays the factor when the invoice is due. The remainder of the money is sent to you, minus the factor’s fees.

What is invoice discounting?

With invoice discounting, you invoice your customers. A finance company then lends you a percentage of the invoice amount. This can be in the form of a line of credit or a lump sum.

The customer pays you as normal, then you repay the lending institution, in addition to any interest or fees applicable.

 

Benefits of invoice financing

• Your invoices are used as collateral and in most cases, no real estate property security is required, so personal assets such as your home won’t be at risk.
• You gain access to finance that can help you achieve your business goals, whatever they may be.
• Feel confident that your cash flow won’t dry up during quieter periods.
• Your customers can potentially have more time to pay your invoice and it won’t affect your business.

To find out more and discuss which type of invoice financing may be right for you, get in touch today.