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Invoice financing

All businesses experience cash flow problems at one time or another. With invoice finance you can unlock the money tied up in your sales ledger, giving you quick access to funds

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Invoice finance is like a cash advance on your unpaid sales invoices. You'll get an advance as soon as you raise an invoice, even if it takes your customer much longer to actually pay. How does invoice finance work? Invoice finance technically isn't a loan. Instead, you sell an asset (your unpaid invoice) to a finance provider. They immediately pay you a large proportion of the invoice. Then, when your customer pays the full amount they'll pay you the remainder, minus any fees. There are two main types of invoice finance: Invoice discounting which generally works as described above. There are some variations in how Discounting is applied, eg the option to have a confidential facility or a disclosed facility. Invoice factoring which is a credit control service in addition to the cash advance. With factoring the finance provider provides a professional credit control team to chase in payments for outstanding invoices. Fees for this service are higher than for invoice discounting. In both cases the lender will require a high degree of visibility in your business including regular management accounts and a trust account for invoice payments to go into. Who is invoice finance suitable for? Invoice finance is great for businesses that invoice for their services and collect payment later, as it gives faster access to the cash you are owed. In particular businesses that are growing fast sometimes find themselves squeezed and unable to buy the raw materials they need or pay their staff on time. Invoice finance is a good solution to this problem as it eliminates the payment cycle gap. But beware there are a number of fees that can add up so if your margins are extremely tight this might not be for you. If you sell your services directly to consumers then invoice finance isn't for you. Or, if you need a business loan to make an investment such as opening up in a new location, then invoice finance won't be right. Remember that it's a cash advance of the money you're already owed, rather than an injection of new cash into the business. Key facts about invoice finance Invoice finance agreements tend to have a lengthy minimum term and notice period make sure to read the fine print! Invoice finance isn't technically a loan so you can still apply for other types of finance at the same time Invoice finance is one of the few types of finance that is consistently offered to relatively new companies; as long as you're trading, finance companies will be open to your business. To find out how the Forum of Private Business can help you find the funding your business needs, call us now on 0845 130 1722 and choose option 2.