How do you qualify?
Invoice finance is for businesses who bill business to business (B2B). These lenders are more likely to lend to businesses who are financially stable but have a cash flow issue or need money for growth. An invoice finance lender is more likely to offer funds to a business than an unsecured lender as they have security in the outstanding invoice.
What are your options?
When looking for finance your options are diverse see options below:
|Options||What it takes to apply|
|Invoice finance||For businesses who bill other businesses (B2B). They will take security against your outstanding invoices and may take over the collection of payments from your business.Usual cost: 16-25% annualised|
|Working Capital/Short term||A loan that increases your cash flow and paid back within 3-10 months. Every business can apply for a quick cash advance, but it can be very beneficial for seasonal businesses. The process can be quick but also expensive compared with other options.Usual Cost: 20-60% annualised|
|Overdraft||Banks offer businesses overdrafts, although your business or directors will need show a good credit rating.Usual Cost: 10-25% annualised|
|Start-up loans||You must be at least 18 to apply for a loan, and you will also need a strong business plan to show what the loan is for. If you have been trading for over a year you cannot apply.Usual Cost: 6% annualised|
|Merchant funding||Usually small businesses use this form of funding because it is short term regular payments paid usually on each business day (under two years).Usual cost: 30-60% annualised|
|Unsecured loans||Like a standard retail loan with fixed monthly payments.Usual Cost: 7-20% annualised|
Who uses invoice finance?
Most businesses need a consistent cash flow to grow and run smoothly- this can be supported via invoice financing.
Examples of why businesses will apply for invoice finance:
- Businesses that want to expand
- Businesses that want to rebrand and move
- Purchases (present and future orders)
- Avoid delay in business performance and production
Positives of invoice financing
- Improves cash flow almost instantly, you will have the cash as soon as the orders are invoiced
- Access to an unlimited supply of cash that increases as your sales grow
- They will manage your books with a professional team to collect your payments.
- Benefits financial planning as you have access to a credit line when you need it.
- Having the option of using the cash to improve your business by investing in new technology for example.
- Invoice allows flexibility when applying for other forms of funding
- Possible protection for your business from poor debts (only for non-recourse factoring)
Negatives of invoice financing
- The lender will decide on the credit terms for your buyers
- Ending the agreement can be complex
- They can take control of the collections so they could dispute your current relationships.
- If you chose to factor your invoices you are responsible for collecting the debt.
- It can be more expensive than other finance options (see what are your options)