Invoice financing, as the name suggests, is a form of lending based solely on invoices. It involves a third party, often a bank, buying up your unpaid invoices or lending you money against the value of the accounts receivable.
So as your business continues to provide services or goods to your customers, you in turn hand these invoices to a provider who pays your business a percentage. Once the invoice is paid and the service charge of the provider is covered, you’ll receive the remainder of the sum.
As money is often tied up in invoices during the day-to-day running of a business, this form of financing can potentially speed up cashflow.
There are two main types of invoice financing:
How invoice finance works depends on the type of agreement you enter into.
With factoring, the invoice financier buys the debt owed to you by your customer, making a percentage of the amount – usually about 85% – available to you up front. The financier then collects the debt directly from the customer and pays you the remaining balance once the money is in the account – all in return for a fee and interest charges.
When it comes to invoice discounting, the financier loans you the money owed, and you repay this loan as your customers pay their invoices. You remain responsible for collecting the invoice payments, while interest charges, as well as a monthly fee for the service, still apply.
Shopping around for financing providers at MoneySuperMarket is an easy way to find the best deals suited to your specific business needs. By answering a few brief questions about the type of business you run and what it is you’re looking for, we’ll give you a tailored list of great options for you to consider. We make it easy for you to browse, compare and most of all, provide you with all the information you need to make an informed decision. Once you know what you want, you’ll be led to the provider to finalise your deal.