FUNDING OPTIONS

Invoice Finance

The concept for invoice finance is simple.

To save your business waiting days or weeks, or even months, for invoices to be paid by customers, invoice finance lenders will advance you a percentage of the invoice value immediately.

This means that you can get paid faster for completed work, ensuring your business continues to have cash flow and can continue growing.

Once the invoice is paid, the facility is repaid and the provider receives its fee for advancing you funds.

There are two types of invoice financing available; invoice factoring and invoice discounting. Both of these options give businesses the choice of how much control they have over their finances, whether you want to keep control of your business’s cash flow or maybe have the lender take care of collecting payments for you.

Here’s a more detailed look at the two products within invoice finance:

Invoice Factoring

INVOICE FACTORING is the option in which the lender is most involved, providing ‘credit control' to ensure your customers pay on time. This could allow you to focus more on your business, instead of chasing late-paying customers.

Some of the key features of invoice factoring to consider are…

Your customers will know you are using a factoring provider – whether this suits your business is very much a personal choice.
Potential customers could be credit checked by the lender on your behalf.
This type of invoice finance may be easier for smaller or early-stage companies to secure.

Invoice Discounting

INVOICE DISCOUNTING is the option where you continue to provide the ‘credit control’ of your customers’ payments. This is the simplest version of invoice finance and is more hands-on for a business, but this also means that it is also more time-consuming.

Some key features of invoice discounting are:

Invoice discounting is often available to more established businesses with higher turnover.
You still need to deal with credit control to ensure customers pay on time.

There are both pros and cons to deciding on invoice financing. Some of the advantages, for either option, are:

You are in control of raising cash quickly for your business. Funds can be made available as soon as an invoice is raised and can be used to keep your business running.
As invoice financing is secured against your invoices, there is no necessity to offer up physical assets from your business.
Invoice discounting can help SMEs enjoy growth and development in a shorter amount of time by turning credit into cash.

Of course, there are also restrictions to invoice finance

Invoices must be business to business, not to the general public.
If you choose the option of invoice factoring, then chasing payment from your customers will be carried out by the lender. This means there is a chance that client relationships could potentially be impacted. This will differ from business to business and only you will know whether this will be a problem.
Invoice financing is a great short-term solution for cash flow in businesses, but it can have longer-term costs added on. Interest rates and the processing costs associated with lenders are things that should be considered.

If your business needs a more flexible approach, there are further options:

SELECTIVE INVOICE FINANCE lets you choose selected customer accounts to finance, while SPOT FACTORING allows you to elect individual invoices. These options can provide a more flexible approach.

Selective Invoice Finance and Spot Factoring may be the better option for businesses that require a set amount of money, but can be harder to secure than factoring or discounting.

Construction Finance

Construction Finance is specifically designed to support the construction industry, including contractors and sub-contractors.

Construction finance is used to cover the gap between completed or partially completed work and you receiving payment from your customer. If you have outstanding payment, such as an uncertified application for payment, staged invoice, or sales invoice you can submit it to the construction finance lender.

The prepayment will vary depending on how your customer’s credit rating and factors such as your annual turnover, credit history and number of debtors, but could potentially be as much as 70% of the total outstanding payment. As with non-construction invoice finance, this facility can be used for your entire sales ledger or there may be an option to get an advance against a specific invoice or application for payment. Funds can be used to fund new projects, pay suppliers, purchase new construction equipment and machinery, or simply boost working capital.

Supply Chain Finance

Supply Chain Finance is a facility that allows a buyer to pay their supplier earlier. By using supply chain finance, the buyer may be able to obtain discounts from their suppliers by making early repayments on their invoices.

Trade Finance

Trade Finance is unbelievably valuable to businesses that import goods, as issues can arise if a supplier abroad wants payment before they will ship goods. This kind of funding bridges the gap and allows the transaction to take place.

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