Solvent or Insolvent: Your business can qualify for invoice finance

Sema Fongod
Head of Digital
Touch Financial
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 What’s invoice finance? How can it grow your business? Sema Fongod of reveals what, how and why invoice finance could be right for your business.

As the economy continues to battle against the effects of the banking crisis and the double-dip recession, SMEs are still finding it hard to obtain bank finance. With over 43,000 businesses benefiting from the facility, invoice finance is increasingly replacing the traditional credit facilities as a leading source of working capital.

What is Invoice finance?

All businesses – from start-ups to multi-national companies experience cashflow difficulties at some stage in their trading cycle. Invoice finance is a method of creating additional capital by using invoices as the principal asset against which funds are raised. Once an invoice is raised, the finance provider could advance up to 90% of the cash tied up in your outstanding sales ledger, usually within 24 hours. The remaining 10% of the cash is made available to you once your customer settles their full invoice, less any charges.

Factoring vs. Invoice Discounting

Invoice finance is administered in two forms: factoring and invoice discounting. These forms are very similar, but differ in the following ways:

  • Credit control: With factoring, the factoring provider takes full responsibility of your credit control – chasing your customers and collecting payments on your behalf. Invoice discounting typically permits you to handle your credit control.
  • Target market: Invoice discounting is suitable for larger companies (say turnover of £300,000 and above) as they often have in-house systems to manage their own sales ledger. Factoring is geared towards SMEs and even start-up businesses.
  • Confidentiality: Invoice discounting is generally administered with your customers unaware of a lender’s involvement. Factoring on the other hand is a disclosed facility.

What qualifies your business for Invoice Finance?

Invoice finance is a funding facility suitable for a wide range of businesses irrespective of their industry: from loss-making to highly solvent businesses, start-ups to veteran companies, regional to multi-nationals.  Invoice finance is suitable for your business if:

  • You sell on credit to other businesses with your outstanding invoices spread across a variety of customers. Typically, cash and pro-forma sales would not qualify.
  • You issue invoices with payment terms of between 15 to 90 days.

Advantages of Invoice Finance

  • Improved cashflow: Up to 90% of the cash tied up in your sales ledger is released within 24 hours of raising an invoice.

  • Optional Bad debt protection: Specialist lenders can offer bad debt protection as an insurance against untimely defaults.

  • Optional credit control: Full assistance with the management of your sales ledger, tailored to how you wish to do business.

  • Flexibility: Flexible facility that grows in line with your turnover, unlike other traditional forms of finance such as overdrafts.

  • Working Capital: Working capital is created which permits you cover day-to-day overheads.

  • Bargaining power: Bargaining power is boosted which enables you take advantage of early supplier discounts


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