Invoice Finance allows businesses to borrow money from lenders, whilst using their unpaid invoices from customers as security for the loan. This allows businesses to improve their cash flow, pay their employees and reinvest in operations. Through invoice factoring, a company will sell it’s accounts receivable to a lender in order to improve it’s working capital. Following this the lender in question will give the business immediate payment and the lender will receive the payments from customer invoices. This allows the business to utilise the immediate funds and develop in a way that they otherwise would not have been able to.
As well as invoice factoring, a business could use invoice discounting, which is very similar to invoice factoring, however the business, not the lender collects the payments from customers. So instead of payments going straight to the lender, the business will first collect the payments from the customers and use the funds to pay for scheduled repayments.
As mentioned, for the business in question, invoice finance gives them access to immediate funds which they otherwise would not have had access to. These funds can be used as they wish, for example improve their cash flow, pay their employees or reinvest in operations. Invoice Financing in the form of invoice discounting also requires little more involvement from the business as, assuming the customers pay the invoices, then the money will be sent straight to the lender. So unlike other forms of business finance where repayments need to be arranged, invoice finance offers a hassle-free experience for businesses looking to free up some cash.
Is this the right loan for your business?
The type of loan that best suits a business depends on a multitude of factors; the size of the company, financial strength and most importantly the needs of the business. Whilst the size of a company is a factor, it won’t stop you from getting an invoice finance loan as they are available to businesses of all sizes, it’s just whether an invoice finance loan is the right option for you, a standard business loan, asset finance or start up finance might be better suited to your company.