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An Introduction to Invoice Finance for Small Businesses

Most small businesses will need business finance of some kind, but as most small businesses know it can be one of the most difficult aspects to secure.

The most popular sources of finance for small business include personal sources, banks, finance companies, asset based lenders and invoice finance companies.

In this article we will discuss invoice finance as a source of small business funding.

What is invoice finance?

Invoice finance is the generic term for business funds advanced by a lender on a company’s outstanding sales invoices. The lender takes security over the debtor book and will advance up to 95% of invoice value and sales must be on a business to business basis.

The two main types of invoice finance products are invoice factoring and invoice discounting.

Invoice factoring is the most popular type of invoice finance for smaller businesses. The invoice finance company will advance up to 95% of the value of outstanding invoices and usually take responsibility for credit control and debt management. Bad debt protection is an optional service along with credit check facilities.

Invoice discounting is usually only made available to small companies with turnover above a given threshold and the facility is confidential in that your customers are unaware of it. A recognised and systematic process of credit control and ledger management also needs to be in place.

Specialist invoice finance services

There is a range of specialist services available. One in particular that can be of benefit to small companies is selective invoice finance.

This is where the invoice finance company will advance funds on specific outstanding sales invoices where there is a need for a short term boost to cash flow.

The benefits of invoice finance to small businesses

One of the biggest benefits is the ease and speed of securing and setting up this type of business finance. Because the lender gets its security from the invoices it advances the funds against they can be more flexible with their lending criteria and are able to process applications quickly.

Other benefits include:

• Immediate access to cash
• Improves cashflow
• The facility grows with the business and advances more funds as sales grow
• Provides full credit control function if full factoring
• Professional credit control facilities
• Frees up management time
• Bad debt protection available
• Export services available for businesses trading overseas
• Factors generally don’t ask for additional security beyond a charge over the book debts of the business. Sometimes a personal warranty or full personal guarantee is required to safeguard the factor from fraud or losses. This is often required in a newly established business.

About us

The invoice Finance Company is one of the UK’s fastest growing independent finance brokers. We do not charge for consultations, advice or financial assessments, so if you would like to find out more about invoice finance including invoice factoring and invoice discounting feel free to call us on 0845 459 7504 or email us at info@invoice-finance-uk.co.uk