Using Invoice Finance to improve Cash Flow

Invoice finance, also known as invoice factoring or accounts receivable financing, is a financial tool that businesses can use to improve their cash flow. A lender will inject cash into your business by advancing against your invoices as soon as you raise them so you do not have to wait 30, 60 or 90 days for payments to come in. This can be particularly helpful for businesses facing cash flow challenges due to delayed payments from customers. Here's how it can help improve cash flow and how it works:

So what are the benefits to using Invoice Finance?

1. Immediate Cash Flow: Invoice finance provides quick access to cash, allowing you to cover your immediate financial needs and keep your business operations running smoothly.

2. Predictable Cash Flow: With invoice finance, you can better predict your cash flow because you're no longer reliant on uncertain customer payment schedules.

3. Working Capital: It helps unlock the working capital tied up in accounts receivable, which can be reinvested in your business or used to reduce debt.

4. Flexibility: Invoice finance is a flexible solution that can be tailored to your business's specific needs. You can choose which invoices to factor and how much to finance.

5. Credit Management: Some invoice finance companies also offer credit management services, helping you assess the creditworthiness of your customers and minimise the risk of non-payment.

6. No Additional Debt: Invoice finance is not a loan; you are simply getting an advance on your own money tied up in invoices. This means it doesn't increase your debt load.

7. Scalability: As your business grows and generates more invoices, you can scale up your use of invoice finance to accommodate increased working capital needs.

How does Invoice Finance actually work?

1. Invoice Generation: Your business generates invoices as usual and sends them to your customers for the goods or services provided.

2. Invoice Submission: Instead of waiting for customers to pay, you submit the invoices to an invoice finance company.

3. Advance Payment: The finance company typically advances a percentage (usually around 70-90%) of the invoice's value to your business, usually within 24 hours. This immediate cash injection can be used to cover operating expenses, pay employees, invest in growth, or address other financial needs.

4. Discount or Fee: The finance company charges a fee for its services, which is deducted from the remaining invoice amount.

5. Collection and Payment: The finance company can take responsibility for collecting payment from your customers or you can do this yourself. Once the customer pays the full invoice amount, the remaining balance (minus the fees) is paid to your business.

Before choosing an invoice finance provider, compare different options by using a specialist Invoice Finance broker, to help understand the terms and getting the best options for your business requirements.