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Invoice finance
As a business owner, you’ll know that finding the right finance can mean the difference between success and stagnation. Although a wide range of funding options are available, finding the best solution for your business can sometimes be challenging.
Read on to find out how invoice finance works, its pros and cons, and the alternative forms of funding that might be better tailored to your needs.
What is invoice finance UK?
Invoice financing is a form of asset-based lending where your business takes out a loan against the value of its outstanding invoices. The invoice financing company will typically lend you up to 90% of that total value. The remaining 10%, minus fees, is transferred once your customers have paid the invoices. Invoice financing is suitable for businesses that have to contend with waiting for customer payments. It’s considered an excellent way to free up cash flow and provides an alternative to taking out a traditional loan.
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What are the different types of invoice finance?
There are two overarching forms of invoice financing: invoice factoring and invoice discounting.
What is invoice factoring?
This is where your customers settle the invoice with the factoring company.
Invoice factoring is a good option for businesses that want a third party to manage the whole process, including taking over credit control and the sales ledger. This means you won’t have to worry about collecting payments and will have more time to invest in your company’s growth. However, in the event of a disputed invoice, the factoring company will deduct that value from your available funds until the matter is resolved.
What is invoice discounting?
This is where your customers settle their invoices directly with you.
With this form of invoice finance, the customer is unaware that a third party is involved, and the process remains confidential. Invoice discounting differs from invoice factoring because it allows you to retain credit control and manage your debt collection, invoicing process and overall sales ledger. Your business simply sends a copy of the customer invoice to your discounting provider before receiving the agreed advance. As your lender has less to manage, this type of invoice finance is typically cheaper than factoring.
Who’s involved in invoice finance?
Invoice financing can be a popular option amongst SMEs and start-ups with commercial customers on long payment terms or businesses with customers who habitually pay late.
It can also be a viable cash flow solution for those unable to access traditional loans due to having a less-than-ideal credit score. Invoice financing companies will value the cost of your outstanding invoices over your credit history.
It’s worth noting that many providers will outline specific terms and conditions in their contracts. These may include only lending against commercial invoices and requiring customers to be creditworthy. So, if most of your customers aren’t businesses, invoice financing may not be available to you. Invoice finance companies may tailor their products to specific industries, such as construction or recruitment. Meanwhile, export finance is designed to help businesses that ship products overseas and have to wait until they reach the customer before they receive payment.
What can invoice finance be used for?
Invoice finance could be used to support several areas of your business. These might include funding to support the growth of your business, managing cash flow gaps or paying unexpected bills. Similarly, an increase in business finance could help with your renovation and refurbishment plans, expanding premises or purchasing additional stock.
What are the pros and cons of invoice finance?
As with any form of funding, invoice financing for small businesses has pros and cons. It’s important you understand what these are before you consider applying to lenders.
What are the benefits of invoice finance for small businesses?
- It frees up cash flow and means you don’t have to wait to receive customer payments.
- Your outstanding invoices act as your security, so it doesn’t matter if you have a few other assets.
- If your business grows and your invoices increase in value, you can access greater amounts of funding.
- Once you have reached an arrangement with your invoice financing company, you can typically receive funds within 24 hours of issuing the invoice to your customer.
What are the disadvantages of using invoice finance for small businesses?
- It may not always be the cheapest funding option available to you as you'll be paying a fee that ranges from 1-5% of the invoice value and a monthly/annual facility fee.
- With invoice factoring, your provider has control of the process, and their involvement may impact the relationship between you and your customers.
- If you sell products to consumers rather than businesses, invoice financing may not be available to you as many providers will only lend against commercial invoices.
- Any disputed invoices could result in your funding being withdrawn.
Alternatives to invoice finance for small businesses
It’s important to find a solution that’s right for you and your business, so it’s worth considering some alternative options to SME invoice finance. That way, you can ensure your funding is closely tailored to your requirements.
A small business loan from Fleximize can provide flexible finance on terms that work for you. We offer both unsecured and secured options. To give you an initial idea, here’s a summary of what we can offer:
Business loans of £10,000 – £500,000 over 3 – 60 months
Approval and transfer of funds in as little as 24 hours
Interest rates from 0.9% per month
No hidden fees or early repayment penalties
Interest charged on reducing balance, not the total loan amount
Repayment holidays and top-ups are available as standard
Exclusive discounts on industry-leading business tools are available through our Member Marketplace.
If you come to us for an alternative to SME invoice finance, your credit history won’t be the only thing we consider. We’ll get to know you and your business to provide a tailored finance solution that meets your specific needs.
How much does a business loan cost?
Calculate how much a business loan will be by using our business loan calculator below. By adjusting the loan amount with the term length and interest rate, you can get a an idea of how much your monthly repayments will be.
Why choose Fleximize for your finance?
We’ve helped thousands of businesses secure the funding they need on terms that work for them. If you’re seeking an alternative to invoice financing in the UK, here are five reasons to rely on us:
Fuss-free: The application process takes minutes; you could receive your funds within 24 hours.
Flexibility: With top-ups, a Penalty-Free Promise, and repayment holidays available, we’ll build you a finance package perfectly tailored to your needs.
Personal: You’ll be assigned a dedicated relationship manager who will be on hand to help with anything you need – including if you return for repeat funding, as most of our customers do.
Recommended: We're rated ‘Excellent’ on Trustpilot based on hundreds of independent reviews.
Industry recognition: Our work has seen us win numerous awards, including being crowned the UK’s Best Business Finance Provider at the British Bank Awards twice.
Loved by our customers
Apply for a business loan with Fleximize today
If you’re looking for a way to free up cash flow and want to explore alternatives to invoice finance, Fleximize can help. Our flexible funding solutions can allow your business to thrive on terms that suit you.
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