There are many banks, financial services and independent companies which offer invoice financing as a method to help businesses in the short term. They essentially purchase any unpaid invoices a company may have and provide the money up front for a fee.
This can be incredibly useful for a lot of small and new businesses which rely on invoices to be paid promptly so they have the funds for growth. From needing the finances almost immediately to pay staff, buy products in bulk at a discount or other services, there are a few different options within invoice financing.
Invoice factoring is the most common form of invoice finance. It can provide a much more attractive and sensible solution to any cash flow problems as opposed to taking out a bank overdraft or loan to get instant access to cash.
It works by raising an invoice with a client, including all the regular payment information, before sending a copy to an invoice financing company (visit a site such as Touch Financial, who can help you find a relevant one for you). They pay your business an agreed percentage of the invoice soon after. The lender then collects the full payment from your client and sorts out the rest, leaving you with more time to focus on growing your business.
The main difference between invoice factoring and discounting is that with discounting it’s highly unlikely your customers will know an invoice financing service is being used. You retain all the responsibility of chasing up invoice payments, looking after the sales ledger and processing every invoice.
This means clients pay you as normal without knowing your company has received funds earlier. The invoice discounting firm checks your company, customers and systems before agreeing to advance a certain amount of outstanding invoices. For this reason you may not be guaranteed as much as with an invoice factoring firm but it is a discreet method.
Using an online platform, financial providers bid to provide the money for invoices businesses upload. It is a fairly new phenomenon whereby the company posts all important details, such as a minimum advance required, maximum finance fee payable and a timescale for the auction.
A buy now option is created too and if no investor chooses that option then the bid closest to it at the end of the auction is the ‘winner’. The amount is then paid from the investor through the platform (who take a percentage too) before getting to the business. It can lead to better deals especially for individual invoices, however if you are looking to advance cash from the majority of your invoices, it may end up the more expensive option.