Your Invoice Finance Questions Answered

If you are new to Invoice Finance, it can feel like there is a lot of information to take in. With a range of vocabulary and assumptions floating around, we thought it would be useful to address some of the commonly asked questions surrounding Invoice Finance.

What is Invoice Finance and how does it work?

Invoice Finance is a form of external finance used by many B2B businesses as an extra means for funding their business. The formula of Invoice Finance is based of lending against a business’s invoices and is often referred to as a form of asset-based lending. With an Invoice Finance facility, a provider will fund businesses based on the value of outstanding invoices owed to them by customers. The value of the invoice is made available for the business with immediate effect, less an agreed fee, meaning that the business does not have to wait 30, 60 or even 90 days for their customers to pay them.

What are the different types of Invoice Finance?

The most commonly-known form of Invoice Finance is Invoice Factoring. This is where your business can draw up to 95% of the value of an outstanding invoice, whilst your funder takes the responsibility of chasing customer payments. Alternatively, there is also the option of Invoice Discounting. This form of Invoice Finance allows you all of the same benefits as Factoring, however you maintain responsibility for your own credit control. This can often be preferred by long-established businesses that already have a credit control process in place.

What types of businesses is Invoice Finance suitable for?

Invoice Finance is suitable for B2B businesses from a wide range of industries. It is primarily beneficial to businesses that work on longer credit terms with their customers, such as haulage businesses, manufacturing companies, recruitment firms and more. Invoice Finance can support businesses at various stages of their journey and is particularly helpful for businesses experiencing periods of growth or expansion.

What are the benefits of Invoice Finance?

This form of finance boasts an array of benefits for businesses. With immediate access to your hard-earned money, you can really focus on developing the future of your business. Here are just some of the many benefits of Invoice Finance to businesses:

  • You are able to gain access to money quickly and do not have to wait for 30, 60 or possibly 90 days for your customers to pay.
  • As you are receiving money at a faster rate, it allows for an improved and more reliable cashflow.
  • If more suited to your business, you are able to keep arrangements confidential, so customers are not aware that there is a facility in place.
  • Invoice Finance can support businesses that are experiencing challenging fluctuations.
  • It is often available to businesses that are unable to receive funding by traditional bank finance.
  • It can be useful for businesses that have a smaller number of clients who pay larger value invoices. In cases like this, late payment of a single customer can pose risk to the company.
  • With Invoice Discounting, it allows the business to retain control as, with discounting, the business is in charge of chasing invoices.
  • With a more reliable cashflow forecast, you can focus on growing, developing and expanding your business.

What if I don’t want my customers to know that I use Invoice Finance?

Not every business will feel comfortable with disclosing an Invoice Finance facility to their customers and suppliers. This is why there is the option to have either Confidential Invoice Factoring or Confidential Invoice Discounting. With both of these facilities, your customers will never know of your association with a finance provider. If you opted for a Factoring facility, your Invoice Finance provider would act as part of your team, collecting customer payments on your behalf.

My business experiences fluctuations in demand – can I use Invoice Finance?

If you are looking to unlock cash tied up in unpaid invoices but are also worried about meeting the funding requirements due to fluctuations in demand, Invoice Finance may be a great option for your business. Many businesses will experience some form of change in demand for their products or services throughout the year, for example seasonal fluctuation during the Christmas period. Invoice Finance is a great solution for businesses who experience these fluctuations, as your facility grows with your business. Invoice Finance is flexible so that your facility can increase as your sales increase and vice versa. This means that you can begin to manage expected changes in demand and amend your facility as you do so.

What are the differences between Invoice Finance and a bank overdraft?

Invoice Finance involves having access to unpaid invoices at a set advance less an agreed fee before your customers pay you. A bank overdraft is closer to a loan as you are given a set amount to use which you will later pay back. Unlike a bank overdraft, which is for a fixed amount and pre-arranged with the bank, Invoice Finance is flexible facility and as sales grow, so does the amount that can be borrowed. As Invoice Finance is based upon your sales ledger and adapts to your sales forecast, a larger amount can be accessed compared with a bank overdraft. It is also ideal for companies who do not meet traditional lending criteria of a bank overdraft.

I already have a credit control team – is Invoice Finance still suitable for me?

If your business has an established credit control process in place, you may be put off by the idea of someone else being responsible for contacting your customers for payment. The great thing about Invoice Discounting is that it is specifically designed for businesses in this situation. You can still benefit from all the useful features of an Invoice Finance facility, but you can remain the contact for your customers. Not only is this a beneficial form on Invoice Finance for businesses with an established credit control team, but also for those that have close relationships with their customers.

We hope we have answered some of your questions above. If you have any queries about whether Invoice Finance is the right choice for your business, get in touch today on 0800 0854150 or at