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Invoice Finance

Traditional lines of credit are now harder for businesses to obtain as banks seek to protect themselves against the risks associated with bad debts and changing rules in banking mean that banks are restricting the provision of overdraft facilities.

Invoice finance is a method of raising finance that is available to any business that has outstanding or unpaid invoices in its sales ledger. It is simple to organise and these invoices are used to secure finance which can be lodged in a company bank account in just 24 hours.

Possible Solutions
Invoice finance solutions are usually one of two types of arrangement, factoring and invoice discounting.
Factoring and invoice discounting are technically different but achieve a similar result for clients looking for a quick boost to their cash flows. Factoring involves selling a debt from the sales ledger for a cash advance. Invoice discounting involves the client obtaining an advance on the value of the sales ledger which is usually between 80-90% but can be as much as 95% of the value in some circumstances. When the invoice is paid the invoice finance company will pay over the remaining percentage of the invoice value.

Once an invoice finance facility is in place a company will raise invoices to clients as normal and their relationship with their customers is unchanged by the presence of an invoice finance agreement. Funds can be transferred within 24 hours of the creation of an invoice meaning there are no more concerns over when a payment will hit the bank account. If a factoring agreement is in place the lender will utilise an expert team of credit controllers to chase debts whilst under invoice discounting the client is able to retain control of the credit control process. Both solutions offer a confidential option in which the relationship between lender and business is not disclosed to the end customers. This means that businesses can raise finance at short notice without impacting on their key customer relationships.

Benefits of Invoice Finance
Both factoring and invoice discounting solutions can be used to finance a business for any reason whether it's to fund working capital, make a distribution to owners, purchase fixed assets or to replace debt in the balance sheet. An agreement can be entered into, which provides a competitive charging structure over a fixed term period. The cost of finance is relatively inexpensive, especially when compared to other forms of borrowing, other than long term loans. One of the key benefits of both factoring and invoice discounting is that the facility grows alongside the business. If sales expand rapidly then the facility will keep pace with that change. Loans and overdraft limits do not alter without a review which involves quite a lot of detailed analysis and planning. The existence of a factoring or invoice discounting facility means that businesses do not run the risk of overtrading because they can always raise the capital to fund their growth.

Other Points to Consider
Invoice finance is not just for large businesses with a sufficiently balanced ledger to satisfy those who assess bad debt risk amongst lenders. It is also used by small and medium sized businesses as well as start-up operations. Many smaller businesses use invoice finance as a means of bolstering their credit control function. Whilst an invoice finance facility does not necessarily mean that the responsibility of collection is with the factoring or invoice discounting company, they often have the knowledge and resources to chase outstanding debt effectively. Due diligence completed before any cash is made available against the value of an invoice means that businesses can be more confident in the recoverability of any debts on their ledger. The rejection of a client from the debtors ledger for an invoice finance solution can act as an early warning of an impending bad debt and businesses can restrict trade accordingly.

There are many thousands of businesses in the United Kingdom successfully trading with active factoring and invoice discounting facilities and many more that have in the past relied on such forms of finance. This alone tells a story that invoice finance is a widely used source of funding and one which is keeping pace with the economic change experienced by businesses in recent years.

To discuss the invoice finance options that are available to your business or to get an indicative quote, please call 01753 888 737 or complete our online quotation form.
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