What Is Invoice Financing?
Invoice financing is a flexible funding solution that helps businesses improve cash flow by unlocking money tied up in unpaid invoices.
Instead of waiting 30, 60, or even 90 days for customers to pay, a business can use its outstanding invoices to access a large portion of the invoice value almost immediately.
How It Works
When your business issues an invoice to a customer, it can submit that invoice to an invoice finance provider. The provider advances a percentage of the invoice value – often between 80% and 90% – within a short timeframe.
Once the customer pays the invoice, the provider releases the remaining balance to the business, minus a fee for the service.
Depending on the arrangement, the business or the finance provider may be responsible for collecting payment from the customer.
Types of Invoice Financing
There are two common forms of invoice financing.
- Invoice factoring involves selling invoices to a finance provider that also manages collections – and is generally more expensive.
- Invoice discounting, on the other hand, allows the business to retain control over customer relationships and collections while using the invoices as collateral for a loan.
Benefits and Considerations
Invoice financing can be especially useful for new and growing businesses that need working capital – e.g. for things like:
- Payroll
- Inventory
- Expansion
Invoice financing is often easier to obtain than traditional loans because approval is based on the creditworthiness of customers rather than the business itself.
An important benefit is that a property is not required to secure the facility, as it is the invoice(s) that secures the facility.
However, businesses should consider the cost of fees & interest rate and ensure the arrangement aligns with their cash flow needs.
Next steps:
First Point Group has access to many large and small lenders who specialise in this type of business finance. Please contact us to answer any questions you may have.
There are many different types of finance we can help with
View our Services on our website or Contact Us to discuss your needs
