Invoice financing: How can it benefit your business?

POSTED: 18th June 2013
IN: Guides

Invoice financing aims to unlock the cash in your business that is owed to you from work completed but has yet to be paid.

undefinedA common problem for growing firms is finding a way to be able to match the increased costs that need paying upfront so that a bigger can be completed.

It is ironic that as your firms’ order book grows and your business improves the pressure on cashflow grows. This is because you are still being paid for smaller jobs whilst taking on bigger ones.

For a growing business that is struggling to find the cash to pay for the cost of sales on new orders invoice financing can help a firm to focus on the most important aspect, acquiring new orders and getting the work done to the satisfaction of your customers.

How does it work?

There are two types of invoice financing; debt factoring and invoice discounting. Debt factoring is when your credit control and cash collection departments are run on your behalf.

Invoice discounting works by advancing a percentage of the total outstanding on your sales ledger. The rest of the money is given to the business once the customer has paid the invoice.

A business raises an invoice after the order is complete. The details are then passed to the finance company or bank that advances the funds for them to send you the money.

Disputed sales invoices

If there is a dispute that comes to light after an invoice is raised and you have been advanced a portion of the funds, then you need to inform your invoice finance provider.

This is likely to mean that the money gets returned if the invoice has not been paid or remained in dispute for a certain length of time. The cash will be returned to your firm once the dispute has been settled.

Business benefits of invoice financing

It means you can invest in your business. This could take the form of buying a new vehicle or piece of machinery that extends the type of jobs you can take on and helps grow the business.

It may enable you to hire the staff you need immediately so that you are able to complete a job.

It also allows you to concentrate on what you are good at – growing your business.

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  • Business
  • Invoice Finance
  • SME
  • Guide
  • Intermediaries