In this arrangement, the invoice finance provider (factor) not only advances you the funds but also takes responsibility for collecting payments from your customers. This can free up your time and resources, but it's important to consider how your customers perceive this collection process.
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Borrow against money that customers owe your business
You can use unpaid invoices as security for a loan to help your business
Invoice Finance Deals
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Quick, accessible funding from over 100 lenders
Monmouth Group Business Loan
Loan amount
£1,000 to £500,000
Loan term
3 months to 72 months
Monmouth Group specialise in sourcing the best funding facilities for UK SMEs from our extensive panel of lenders. Let our experts find the right finance for your business. Minimum turnover £100,000 with one year trading.
Indicative offers from over 70 lenders
Funding Xchange Business Loan
Loan amount
£1,000 to £500,000
Loan term
1 month to 120 months
Funding Xchange is a credit broker, not a lender. Funding Xchange puts you in control of your business funding giving you access to indicative funding offers within 3 minutes.
Minimum annual turnover of £100,000, trading history of 18 months and Companies House registration are required.
Instant Quote & Dedicated Account Manager
Rise Funding Business Loan
Loan amount
£10,000 to £5,000,000
Loan term
1 month to 72 months
Rated ‘Excellent’ on Trustpilot. Appling via Rise Funding does not affect your credit score. Tailored service & options based on your needs and circumstances. Minimum turnover £200,000 with 1 year trading.
What is invoice financing?
Invoice finance is a valuable financial tool that can help businesses maintain healthy cash flow. It allows companies to access the money they are owed from their customers without waiting for the payment to arrive. This can help keep a predictable and steady cash flow, making it easier to cover operating expenses. Invoice finance can be especially crucial for businesses facing cash flow challenges, or those looking to seize new opportunities for growth.
How does invoice finance work?
When a business issues an invoice to a customer, it typically has to wait for 30, 60, or even 90 days to receive payment. This delay can create cash flow gaps that hinder day-to-day operations and may even impact the ability to grow.
Invoice finance bridges this gap by providing immediate access to a significant portion of the invoice's value. Here's how it works:
Invoice creation: Your business delivers goods or services to your customer and issues an invoice, as usual.
Invoice submission: You submit that invoice to an invoice finance provider, also known as a factor.
Advance payment: The factor typically advances you a substantial portion of the invoice's value - often up to 90% - within 24 hours.
Debt collection: The factor now takes responsibility for collecting the full payment from your customer when the invoice payment is due.
Remaining payment: Once the customer settles the invoice, the factor deducts their fees and transfers the remaining balance to your business.
Invoice finance ensures your business has a more predictable and steady cash flow. This makes it easier to cover operating expenses, invest in growth, and take advantage of new opportunities without waiting (or chasing) customers for payment.
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Is invoice financing right for my business?
Determining whether invoice finance is suitable for your business depends on various factors:
Cash flow needs
If your business regularly experiences cash flow gaps due to delayed payments from customers, invoice finance can be a useful solution to bridge those shortfalls.
Customer payment terms
If your customers have long payment terms - e.g., 30, 60, or 90 days - invoice finance can provide much-needed liquidity while you wait for payment.
Growth ambitions
If you aim to expand your business, take on larger projects, or invest in new opportunities, invoice finance can provide the necessary capital.
Creditworthiness
Invoice finance is often more accessible than traditional loans, making it suitable for businesses with limited credit history or lower credit scores.
How much does invoice finance cost?
The cost of invoice finance varies, but things to consider that may increase or reduce the cost include:
The invoice finance provider
The size of your business
The number of invoices and their value
The creditworthiness of your customers
You can usually expect to pay a percentage fee based on the invoice value and the time it takes for your customer to settle the invoice.
It's a good idea to get quotes from multiple providers and compare their fees to find the most cost-effective option for your business.
Types of invoice finance
Factoring
In this arrangement, the invoice finance provider (factor) not only advances you the funds but also takes responsibility for collecting payments from your customers. This can free up your time and resources, but it's important to consider how your customers perceive this collection process.
Invoice discounting
Invoice discounting is a more discreet option. Your business retains control over the collections process, and your customers may not even be aware of the financing arrangement. It's a suitable choice for businesses that want to maintain their customer relationships while accessing cash flow.
Selective invoice finance
Selective invoice finance allows you to tailor the loan a bit more. You select which invoices you'd like to be handled by the finance provider and you handle the rest as normal. This can be a helpful option if you're worried about how some customers may perceive the collection method.
Types of invoice finance
Factoring
Invoice discounting
Invoice discounting is a more discreet option. Your business retains control over the collections process, and your customers may not even be aware of the financing arrangement. It's a suitable choice for businesses that want to maintain their customer relationships while accessing cash flow.
Selective invoice finance
Selective invoice finance allows you to tailor the loan a bit more. You select which invoices you'd like to be handled by the finance provider and you handle the rest as normal. This can be a helpful option if you're worried about how some customers may perceive the collection method.
Pros and cons
Pros
Immediate access to cash from invoices helps you cover operating expenses, seize growth opportunities, and stay financially stable
You can better plan and manage your finances with predictable cash flow
With factoring, you can offload the hassle of chasing payments to the finance provider
Cons
Fees can be higher than other financing options. It's essential to compare costs carefully
Factoring may affect how customers perceive your business, as they interact with the finance provider for payments
May not be suitable or necessary for all businesses, particularly if your business already has a healthy cash flow
Alternatives to invoice finance
Business loan
A business loan is a way to get extra funds to run or grow your business successfully. The loan could cover rent for your business’ property, employee salaries or opening new offices to name a few examples.
Business lines of credit
A revolving line of credit provides flexible access to funds when needed, allowing you to borrow and repay as necessary.
Grants and government programs
Explore government grants or assistance programs available to businesses.
Angel investors or venture capital
If you're open to giving up equity, consider seeking investment from angel investors or venture capital firms.
Alternatives to invoice finance
Business loan
A business loan is a way to get extra funds to run or grow your business successfully. The loan could cover rent for your business’ property, employee salaries or opening new offices to name a few examples.
Business lines of credit
A revolving line of credit provides flexible access to funds when needed, allowing you to borrow and repay as necessary.
Grants and government programs
Explore government grants or assistance programs available to businesses.
Angel investors or venture capital
If you're open to giving up equity, consider seeking investment from angel investors or venture capital firms.
FAQ
Can I use invoice finance if my business is just starting?
Yes, some invoice finance providers work with startups, but your eligibility may depend on your business's creditworthiness and invoicing history.
Will my customers know i'm using invoice finance?
It depends on the type of invoice finance you choose. With invoice discounting, your customers may not be aware of the arrangement, while factoring involves the finance provider interacting with your customers for payment collection.
How long does it take to set up an invoice finance facility?
The setup process varies but typically takes a few weeks. Factors include the provider's requirements and if you've got all your financial records in place.
Is invoice finance suitable for seasonal businesses?
Yes, invoice finance can help seasonal businesses maintain cash flow during slow periods and prepare for peak seasons.
How long does it take to get the money?
The time it takes to get paid by the lender depends - if you're a new customer then it may take longer as they will request certain information from you to get you all set up. If you're already set up, accessing the finance can be much quicker.
The main thing is responding to any information requests quickly and having the documentation the lender may need ready in advance.
How much are the fees?
The cost for accessing this type of finance will vary depending on the lender, the type of invoice finance you opt for and how long the invoice remains outstanding.
You'll typically be charged interest on the advanced money from the date you receive it to the date the outstanding invoice(s) is settled. It's worth checking with the finance provider on any specific details though so you can be confident it's the right option for you.
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