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Invoice Finance & The Benefits

Invoice Finance & The Benefits

Invoice finance is a type of funding in which a business sells its unpaid invoices to a third-party lender, known as an invoice finance company, in exchange for an advance payment. This allows the business to receive cash sooner than if they were to wait for the customer to pay the invoice.

There are two main types of invoice finance:

Factoring

The invoice finance company purchases the invoices and becomes responsible for collecting payment from the customer. The business receives an advance payment, typically between 80-90% of the invoice value, and the remainder minus fees once the invoice is paid.

Invoice Discounting

The business retains responsibility for collecting payments from customers. But, the invoice finance company provides an advance payment, typically between 70-90% of the invoice value. Once payment is received from the customer, the business repays the advance, plus any fees, to the invoice finance company.

Invoice finance can be a useful solution for businesses that have a high volume of unpaid invoices and a need for working capital. However, it does come with a cost, and the fees can be high. It's important to carefully evaluate the terms and fees of invoice finance before making a decision.

Benefits of Factoring and Invoice Discounting

Invoice factoring and invoice discounting can provide a number of benefits for businesses, including:

Improved cash flow

By receiving an advance payment on unpaid invoices, businesses can access cash sooner than if they were to wait for the customer to pay the invoice. Therefore, helping with cash flow management and allow businesses to invest in growth and expansion.

Reduced risk of bad debt

By selling invoices to an invoice finance company, businesses reduce the risk of bad debt from customers who may default on payment.

Credit control

The invoice finance company is responsible for collecting payment from the customer. This can free up time and resources for the business to focus on other tasks.

Increased buying power

With improved cash flow, businesses may have the capacity to purchase goods and services on better terms. Thus, helping to lower costs and increase efficiency.

Flexibility

You can tailor invoice factoring to the specific needs of the business. Thus, the terms and fees can be adjusted to suit the volume of invoices being financed and the creditworthiness of the customers.

Credit enhancement

By showing that a business is utilizing invoice factoring, it can demonstrate strong financial management and a healthy balance sheet. This in turn, can improve the ability to secure additional funding from traditional lenders.

However, it's important to note that invoice factoring also has its own costs, which include the factoring fee, credit checking fee, and other charges. Businesses should carefully evaluate the terms and fees of invoice factoring and invoice discounting before making a decision. Learn more at https://ukcommercialfinance.co.uk

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