Juggling finances is crucial to the success of any business. Whether you are a supplier of goods or services, chances are you will be invoicing your client when you issue an invoice the likelihood is you will be waiting for the client to pay, and as many businesses do, you may offer terms such as 30 or 60 days from invoice to pay.
This scenario of being out of pocket for ‘X’ number of days can sometimes be a daunting prospect and asking for invoices to be paid by your clients can lead to a souring of your relationship and could also be detrimental to repeat business.
Basically, your money is stuck for 30 days or more, for goods or services and you still have a business to run! This is where Invoice Finance can offer a solution that will benefit your business greatly.
Invoice Financing can give your business a cash flow injection, while you wait for your client to pay their invoice. By releasing immediate funds which are owed to your business you can manage your finances a lot more effectively. Normally Invoice Financiers will charge a service this can range from ~0.30% – 1.00% and interest on the amount they fund for, this charge can typically be in the range of 0.5% – 2.5% above base rate.
In this brief guide, we’ll try to give you an insight of what invoice finance is and, how it might be beneficial your business.
How Invoice Finance works:
- Your business provides goods or services to the client and in turn, invoices them for payment.
- You then typically upload the invoice straight to the invoice finance provider.
- The invoice finance provider will pay you a certain percentage of the invoice; this could be anywhere from 70 – 95% typically (invoice financing companies will pay varying proportions which are dependent on their own criteria and your business practices and procedures).
- Credit control can be done either by your own business or by the invoice financer; an invoice financer will see all your clients in the same light so you may want to do some of the credit control yourselves depending on the client, this can also be arranged.
- When the client pays the invoice off, the remainder of the unpaid percentage is paid to you by the invoice financer, agreed charges or serviced fees might be charged at this point.
Improve Business Cash Flow:
Invoice Financing will allow your business’s cash flow to be in the black. Within 48 hours of raising an invoice your business will have funds available, negating the realms of waiting and chasing clients.
A significant benefit that will probably make your business more competitive is that your customers are given credit terms, most companies typically expect 30 days credit as it gives them time to offset payments with payments that are also due to them from their customers.
If your business has a full sales ledger consisting of lots invoices to other companies, you could significantly raise cash by letting an Invoice Financer take them.
On the other hand, you can select to get funding against just a few invoices from a few clients, without any ongoing commitment to using the service again. This selective method can be useful if you only have an irregular need for extra funding.
Here at Revolution Finance Brokers, we are independent brokers; our affiliation is with no one lender, our advice is based on your needs. Before we speak to any lenders will we fully understand your situation and based upon that we will secure the best possible products, at the best reasonable rates.