What is Invoice Finance?

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For businesses, cash flow plays a crucial part in ensuring everything runs as smoothly as possible. Without a steady stream of cash, SMEs in particular can struggle to manage the day-to-day running of their business, meet customers’ needs, and invest in progression and growth.

What is Invoice FinanceNo matter how much they plan ahead, even the most promising businesses can sometimes struggle to keep cash flowing. Late payments, large orders, and seasonal fluctuations can all be responsible for a decrease in capital, but luckily, thanks to various invoice finance solutions, there is help available for budding businesses.

Invoice finance has seen a surge in popularity over recent years, with more and more businesses turning to such alternative forms of funding in a bid to smoothly manage their finances. In this guide we’ll explain what invoice finance is and look at the various options available.


What is invoice finance?

Often proving to be a lifeline for SMEs, invoice finance is a term that covers a wide range of funding solutions that act as alternatives to traditional bank loans. Rather than simply taking out a loan and paying the money back with interest, invoice finance can be a much more flexible and secure solution. Whether a business wants to unlock the cash tied up in unpaid invoices, or use the value of its assets to secure funds for progression and growth, there is a wealth of solutions available for businesses of all shapes and sizes.

Key benefits

  • Timely access to cash
  • Save time and energy
  • Help with debt collection if required
  • Organised cash flow management
  • Day-to-day support
  • Straight-forward fees and repayment terms
  • Option to make the most of cash locked up in assets


For companies struggling with the pressure of unpaid invoices, invoice factoring could help. The financier will pay the business up to 90 per cent of the value of the unpaid invoices as soon as they are raised. A credit control team will chase non-payments on the business’ behalf, freeing up both time and money so that the company can focus on progression and growth, rather than debt collection. 

Invoice Discounting

Like invoice factoring, invoice discounting also gives businesses easy access to the money they need, but there are some differences between the two options. While factoring allows businesses to free up time by handing over their sales ledger to an invoice financier, invoice discounting is a much more discreet method of funding. Businesses will gain the funds that they need straight away, but they will continue to manage their debt collection themselves. For companies that don’t want their customers to know that they are using invoice finance, this can be an ideal and cost-effective option.

Asset Based Lending (ABL)

Asset based lending is a funding solution that is secured against the value of business assets. So whether a company uses expensive machinery or vehicles, these assets can be used to secure additional working capital.

This is a popular option amongst expanding businesses or those that are looking for ways to fund mergers and acquisitions, Management Buy Outs (MBOs), or Management Buy Ins (MBIs). By using the underlying value of their business assets, companies can fund growth and change.

At Aldermore, ABL works in conjunction with invoice finance to provide businesses with an on-going line of credit that grows alongside the company. 

Construction finance

Poor cash flow can affect any business, and those in the construction industry are no exception. Relying on payments from customers can cause significant stress and worry, particularly when the money is required to fund both existing and future projects. For this reason, construction finance gives firms the money required against uncertified applications for payment and staged invoices.

Trade Finance

When businesses struggle to obtain credit from suppliers overseas, it can be difficult to maintain a healthy cash flow, and as a result an increasing number of companies are turning to trade finance for help.

When an order is placed with a supplier, a lender will pay for the goods that you are importing. This could cover the full cost of the goods or a certain percentage. The goods will be shipped and delivered, and you will repay the money within a specified time period along with an agreed upon fee.

There are numerous things that businesses can do to prevent their cash flow spiraling out of control. For example, plenty of forward planning and a cash flow forecast can really help to minimise the risk of being caught off guard by unexpected payments or unforeseen seasonal surges.

It can be tempting to put other business goals ahead of your cash flow, and leap out and grab every opportunity that comes your way, but if you don’t have the financial backing behind you, problems can arise. Whether a business needs to unlock cash to effectively manage day-to-day tasks, or fund exciting new projects or developments, invoice finance can really help.

To learn more about invoice finance, please don’t hesitate to get in touch with the team at Aldermore Bank.

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