Invoice Finance is where a third party agrees to buy your unpaid invoices for a fee. Invoice financiers can be independent, part of a bank or some other financial institution.
There are 2 types of invoice financing in the UK:
‘Factoring’ - this enables businesses of all sizes to overcome the cash flow challenges posed by trading on credit. It involves a factoring company advancing up to 90% of an invoice’s value to you within 24 hours of its issue whilst providing a dedicated sales ledger management service, leaving you the time and resource to meet your day-to-day cash flow commitments.
Time delays associated with trading on credit terms mean that a business must often have to wait up to 90 days to receive payment from customers, resulting in limited access to working capital, but factoring invoices will overcome this challenge.
What are the benefits of factoring?
- The working capital generated by factoring invoices can be used to secure new business and meet day-to-day cash flow requirements
- Factoring can be tailored to suit the needs of your business by incorporating additional services such as bad debt protection, whilst confidential factoring means the factoring company will perform credit control under your business’ name if desired
- Factoring is secured on your debtors and the quality of the outstanding invoices as security, negating the need for a detailed trading history to make it a highly useful cash flow solution for businesses of all sizes
- Non-recourse factoring typically releases up to 90% of the invoice’s value to boost your cash flow
- The non-recourse element of factoring invoices eliminates the risk of debtor non-payment through protracted default (non-payment of debts after six months) or insolvency by transferring the risk to the factoring company
- The factoring company will additionally credit check both your existing and prospective customers, on your behalf, to reduce the likelihood of late payment
- Outsourced sales ledger management and credit control functions will be provide