Invoice finance enables an advance in cash against unpaid invoices. In essence, a factoring company will take ownership of a business’s sales ledger and act as a credit department by issuing cash as soon as an invoice has been raised and chase payment when it is due.
There are always a lot of questions asked about invoice finance, so we are sharing some of the most common ones.
What is invoice finance?
Invoice finance is a lending agreement which enables a business to receive payment for an invoice as soon as it is issued. Generally, a company would have to wait for their customer to pay the invoice within their standard 60, 90, 120-day terms. Often this can cause cashflow issues, so invoice finance provides an ideal solution.
How does invoice finance work?
There are 2 aspects to invoice finance.
- Discounting – a company establishes an agreement with a lender to receive a proportion of funding when an invoice is issued. The business continues to manage the relationship with their customer and chase up all outstanding invoices. When payment is received all fee’s required by the lender are settled.
- Factoring – the full credit control solution is outsourced to a lender. The lender issues payment as soon as the invoice is issued and it is their responsibility to receive full payment of the invoice directly from the end customer.
What are the benefits of invoice finance?
There are a number of benefits associated with invoice finance:
- A business maintains a positive cashflow.
- A business will benefit from a good line of credit which in turn promotes healthy capital.
- There are very few limitations with this form of business finance.
- Less risk as no assets are used to secure the funding.
- Total flexibility thanks to the options available.
What are the advantages of invoice finance?
Thanks to its flexibility, invoice finance has several advantages:
- A steady cashflow can be maintained even when invoices remain unpaid for a large period.
- A business can use the funds for whatever purpose they require.
- Once set-up, a business can remain in full control, they keep all the equity and have immediate access to cash.
Can a single invoice provision be set-up?
Yes, absolutely. Invoice finance can be ideal for any sizeable invoice where the business would like to benefit from receiving immediate payment.
How long does it take to set up invoice finance?
There are no set time periods, it all depends on the specific need of each company and what business records they hold. Agreements can be set-up in just a couple of days, or it could take between 2 to 4 weeks.
Can I transfer an invoice finance facility?
Yes, it is possible to transfer an existing agreement for invoice finance from one lender to another lender.
Should you have any questions or would like to know more about invoice finance please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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