Invoice Finance
Invoice finance is a solution which is used by companies whose customers pay beyond their terms. This is made necessary by B2B customers who fail to pay within 30 days.
Late payments can severely impact your cash flow. Essentially, if you do not produce your own goods, you will have to pay your suppliers, despite not being paid yourself.
Invoice finance solves this problem by giving you access to funds which are tied up in outstanding invoices. You can borrow a percentage of an invoice’s value from a lender.
Your cash flow is therefore not restricted until your customer finally makes payment. This also frees you from the transaction, giving you time to find new opportunities.
Finally, invoice finance is split into three different types: factoring, confidential, and selective. Each differ from one another in how the customer’s payment is collected.
Invoice Finance
What is Invoice Finance?
Invoice finance is a solution which is used by companies whose customers pay beyond their terms. This is made necessary by B2B customers who fail to pay within 30 days.
Late payments can severely impact your cash flow. Essentially, if you do not produce your own goods, you will have to pay your suppliers, despite not being paid yourself.
Invoice finance solves this problem by giving you access to funds which are tied up in outstanding invoices. You can borrow a percentage of an invoice’s value from a lender.
Your cash flow is therefore not restricted until your customer finally makes payment. This also frees you from the transaction, giving you time to find new opportunities.
Finally, invoice finance is split into three different types: factoring, confidential, and selective. Each differ from one another in how the customer’s payment is collected.
Why should you use invoice finance?
Invoice finance allows you to access all or some of a customer’s payment before they actually make this payment themselves. This is particularly useful for B2B customers whom you know will take their time to pay an invoice.
A strong cash flow is one of the most important things for growing your business. Sometimes your cash flow can become staggered, due to things like late customer payments. Invoice finance will solve this problem.
When you use invoice finance, the risk of a customer not paying their dues is transferred to your broker or the lender. You will be paid in full and upfront and will not be required to chase the customer or suffer the loss.
You can choose whether you want to finance all or some of an invoice’s outstanding value when you use finance. Financing some of the invoice can sometimes be a better option because there will be less interest to pay.
One of the options with invoice finance allows you to walk away from a transaction entirely. The lender will chase the customer for their payment. And this frees you to call prospects and pursue new opportunities.
There is a type of invoice finance which allows you to choose which customers to finance. You can leave the invoices of existing customers, whom you know to be good payers, and finance the invoices of new customers.
Why should you use invoice finance?
Invoice finance allows you to access all or some of a customer’s payment before they actually make this payment themselves. This is particularly useful for B2B customers whom you know will take their time to pay an invoice.
A strong cash flow is one of the most important things for growing your business. Sometimes your cash flow can become staggered, due to things like late customer payments. Invoice finance will solve this problem.
When you use invoice finance, the risk of a customer not paying their dues is transferred to your broker or the lender. You will be paid in full and upfront and will not be required to chase the customer or suffer the loss.
You can choose whether you want to finance all or some of an invoice’s outstanding value when you use finance. Financing some of the invoice can sometimes be a better option because there will be less interest to pay.
One of the options with invoice finance allows you to walk away from a transaction entirely. The lender will chase the customer for their payment. And this frees you to call prospects and pursue new opportunities.
There is a type of invoice finance which allows you to choose which customers to finance. You can leave the invoices of existing customers, whom you know to be good payers, and finance the invoices of new customers.
What is factoring?
Factoring is a type of invoice finance which removes all of the responsibility from you (the borrower). This is because a commercial lender takes on the responsibility of collecting your customer’s payment.
You will receive a high portion of an invoice’s value at the point-of-sale. The lender will then chase your customer for their payment. And when they eventually do pay, you will receive the outstanding amount.
You should note that the remaining amount will have lender’s fees deducted from it. But this is a small sacrifice compared to the reward of a short sales cycle, which allows you to pursue new opportunities.
The main benefit of this solution is that it is quick. It allows you to complete your transaction and deliver your products without having to worry about the customer’s payment. That’s handled by another party.
Another advantage of factoring is that it improves your cash flow. You will not be required to pay your supplier for the necessary products before the customer pays you. It smooths out the whole process.
What is factoring?
Factoring is a type of invoice finance which removes all of the responsibility from you (the borrower). This is because a commercial lender takes on the responsibility of collecting your customer’s payment.
You will receive a high portion of an invoice’s value at the point-of-sale. The lender will then chase your customer for their payment. And when they eventually do pay, you will receive the outstanding amount.
You should note that the remaining amount will have lender’s fees deducted from it. But this is a small sacrifice compared to the reward of a short sales cycle, which allows you to pursue new opportunities.
The main benefit of this solution is that it is quick. It allows you to complete your transaction and deliver your products without having to worry about the customer’s payment. That’s handled by another party.
Another advantage of factoring is that it improves your cash flow. You will not be required to pay your supplier for the necessary products before the customer pays you. It smooths out the whole process.
What is confidential invoice finance?
Confidential invoice finance is the opposite of ‘factoring’. Where factoring takes away the responsibility of chasing your customer for their payment, ‘confidential’ does not.
In the case of factoring, some debtors may feel uncomfortable that a third party is now involved. As a result, they might oppose your lender collecting their payment.
Confidential invoice finance allows the borrower to be more involved. It also makes your debtors feel more comfortable because it lets them know you are still there.
The lender will still pay you a portion of the invoice’s value upfront. However, it is your job to collect the customer’s payment and repay the lender once you have it.
The main benefit of confidential invoice finance is that it allows you to maintain a relationship with your customers. And this can be very useful in the world of B2B.
What is confidential invoice finance?
Confidential invoice finance is the opposite of ‘factoring’. Where factoring takes away the responsibility of chasing your customer for their payment, ‘confidential’ does not.
In the case of factoring, some debtors may feel uncomfortable that a third party is now involved. As a result, they might oppose your lender collecting their payment.
Confidential invoice finance allows the borrower to be more involved. It also makes your debtors feel more comfortable because it lets them know you are still there.
The lender will still pay you a portion of the invoice’s value upfront. However, it is your job to collect the customer’s payment and repay the lender once you have it.
The main benefit of confidential invoice finance is that it allows you to maintain a relationship with your customers. And this can be very useful in the world of B2B.
What is selective invoice finance?
Selective invoice finance is a very sophisticated type of funding solution. It takes into account your relationship with your B2B customers before arranging any of the finance.
You can therefore choose which customers you use invoice finance on and which ones you don’t. You will not then waste the facility on customers you know will pay quickly.
This puts you in complete control of your business’s cash flow. You could analyse your customer base to determine who you should be selecting for invoice finance and when.
Businesses which work in a seasonal sector will find this very handy. You can finance invoices during industry lulls and allow invoices sent during peaks to run their course.
For that reason, selective finance can be used to smooth out the peaks and troughs of trade. This will ensure that your cash flow is consistent as well as forecastable.
What is selective invoice finance?
Selective invoice finance is a very sophisticated type of funding solution. It takes into account your relationship with your B2B customers before arranging any of the finance.
You can therefore choose which customers you use invoice finance on and which ones you don’t. You will not then waste the facility on customers you know will pay quickly.
This puts you in complete control of your business’s cash flow. You could analyse your customer base to determine who you should be selecting for invoice finance and when.
Businesses which work in a seasonal sector will find this very handy. You can finance invoices during industry lulls and allow invoices sent during peaks to run their course.
For that reason, selective finance can be used to smooth out the peaks and troughs of trade. This will ensure that your cash flow is consistent as well as forecastable.