Invoice financing is a popular choice for many businesses in the UK. This is owing to the fact it gives you quick access to funds without risking your assets.
Are you interested in invoice finance for your business? Read more on the financing option below.
What is invoice financing?
Invoice finance involves borrowing money based on the amount owed to your business by customers. Otherwise known as accounts receivable financing, it uses unpaid invoices to represent money payable to you. This allows businesses to overcome the wait associated with payment terms that can vary between 14 days to 90 days or more. Lenders advance you the amount owed to you immediately so you can focus on maintaining your business operations.
Types of invoice finance
There are two main types of invoice financing. These include:
• Invoice factoring: This finance option involves the lender providing you with credit control services to guarantee that customers pay you on time. This prevents you from having to chase up on late payments.
• Invoice discounting: This occurs when a business performs its own credit control on payments made into its account. This option is more suitable for businesses with a higher turnover who prefer to take a more hands-on approach to their finances.
The benefits of invoice financing
There are several benefits of invoice financing. Learning these benefits can help you determine whether this finance option is suitable for your business. Some advantages include:
No asset risk
Invoice financing operates as an unsecured business loan in place of customer invoice payments. This means you don’t have to offer up any physical assets from your business to borrow money from lenders. For this reason, unsecured business loans are more popular than asset-based lending, given there’s no risk of losing important equipment or machinery as collateral.
Quick access to cash
Invoice financing gives you more control over your cash flow as you no longer have to rely on customer payments. Cash becomes available as soon as the invoice is issued and can be used for several business functions – whether it be paying wages or buying stock.
Submitting business invoices for invoice finance gives you immediate access to funds. This means you can curb slow lender turnarounds which are a component of other types of business loans. Quick turnaround means you don’t have to worry about defaulting on any outgoings as a result of late payments.