Invoice Financing / Discounting

A business with customers who are invoiced is potentially eligible for invoice financing also known as factoring. This type of business funding relieves the pressure and uncertainty of unpredictable cashflow, as businesses are paid in a far quicker manner for completed invoiceable projects.

With invoice finance businesses can be confident of being paid in a timeous manner and are not bogged down with the administrative headaches surrounding unpaid bills and collections. With factoring cashflow concerns are alleviated as in many instances waiting for payment on terms of up to 90 days can put a business under financial pressure.

Businesses no longer have to wait for payment on outstanding invoices as lenders are willing to advance the outstanding amount minus an agreed percentage as a fee. In so doing businesses are paid on time for any work done or services rendered.

Different types of invoice financing exist, depending on how involved the lender is in the credit control and collections process.

Invoice Discounting is one type of financing and here the business owners will have to maintain its own checks and balances. The owner of the business will need to continue ensuring that customers pay their bills on time. Invoice discounting will require business owners to have in place or to set up a credit control department that is competent and experienced at collections and making sure customers pay bills within the agreed payment term structure.

Invoice Factoring is slightly different as with this type of advance the lender begins a direct relationship with the business’s client. The lender in this instance will technically become an outsourced credit control or collections department for the business, alleviating a lot of the administration associated with bill collection and allowing the business owner to focus on more crucial business responsibilities.

Finally, businesses can choose which invoices they would like to finance, in other words be more selective. This is known as spot factoring or selective invoice finance. This a more flexible approach to invoice financing as it does not impact on the total sum of business invoices. Spot factoring enables businesses to pick and choose when they would like to discount the invoices, and which invoices they would like to discount.

Much like a business cash advance, invoice financing is a fast-flexible alternative to the more common business loan. Both financing options provide for an easy application process and double-quick turn around and funding times. Due to the transparent nature of the product, in that both solutions are based on sales performance, the application is simple and straight forward with no requirement for a business plan to justify or support the lending.

A key difference between a merchant cash advance and invoice finance is the performance against which the advance is pinned. Invoice finance or factoring see a business advanced cash against existing invoices or sales. This would typically be business already in the system. A Business cash advance sees a business advanced cash against future credit and debit card sales with repayments mirroring the future performance of the business, so when business is slow repayments are less but when business is buoyant the advance will be repaid sooner.

Business cash advance providers do not offer credit control and back office services in the same way a factoring firm would, but instead collect the repayment directly from any transactions being processed through the customer’s credit and debit card terminal. This fee would be agreed in advance as a percentage of future card sales.

Both these funding solutions are flexible alternatives to the more mainstream business loan and reflect the dynamic nature of modern business and its highs and lows. Appreciating that sometime the hardest part of financing a business is jumping through application hoops both of these solutions offer simple fast approvals with little intrusion to the day to day running of the business.