Advantages of Invoice Finance

In the current economic climate, with banks reluctant to lend money to unproven businesses, small companies can find it difficult to deal with cashflow issues. Those businesses which do not have a significant base of savings or assets to fall back on can often find it difficult to pay for the infrastructure they need to grow in the long-term, or even to meet short-term contingency needs. This is where invoice financing can play a role.

Invoice financing is essentially a simple concept. An outside agency takes on your sales ledger for you, chasing and processing the invoices and then taking the receipts for themselves as payment. In return, they provide an immediate cash sum to your business, usually of between 80-90% of the total value of the invoice.

The main advantage of this arrangement is clear. At a stroke, short-term cashflow issues can be solved, with the invoice financing agency providing immediate payment for invoices which might otherwise take months to chase and process. This method of financing is particularly useful when a business needs to take immediate advantage of a market opportunity, but does not have the cash on hand to do so. Selling on the proceeds of your sales ledger can free up money and enable immediate, flexible investment.

Invoice finance also provides peace of mind in terms of outgoing costs, as such arrangements are typically set up on the basis of set fees, rather than the variable interest rates which can accompany overdrafts or other forms of bank financing. Since the finance received relates directly to your invoices, it is difficult to get into a situation in which the payments owed to the agency outweigh your incoming revenue. This also means that invoice financing can scale up with your business, increasing in magnitude as your revenues climb.

Many small businesses also find the process of chasing invoices to be both onerous and time consuming. While there are certainly potential issues in losing direct control of your sales ledger, it does free up time for you to focus on providing your core business functions. It is certain that the invoices you pass over to the agency will be chased and processed efficiently, as this is how they make their money. In essence, you will be outsourcing your invoice function to experts.

Of course, as with everything in business, there are drawbacks as well as advantages to invoice financing. It is absolutely vital that you chose the invoice financing agency with which you wish to deal very carefully. After all, the agency will be chasing your customers for payment, and you will not have direct control over their behaviour. Short-term cashflow enhancement will be of little use to your business if the agency you deal with rapidly chases away your repeat customers! Ensure that they use well trained customer service operatives, and also read the fine print before entering into the agreement. As long as you use caution, invoice financing can be a great boon to any business.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.


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