Invoice Financing

What is invoice finance? 

Invoice finance is when a lender take security over your unpaid invoices and lends you the money until your unpaid invoice is satisfied. The funds can typically be released within 24 hours of the invoice being raised and you can borrow up to 90% of your unpaid invoices. The amount you can borrow will be subject to individual criteria as certain industries are seen to be slightly higher risk than others. There are two types of invoice financing which are Factoring and Invoice Discounting. The main difference is that a Factoring facility will normally take over your sales ledger and collect payments directly from your customers. Invoice discounting is similar except you keep control of the sales ledger and chase your own payments. 

What type of business use Invoice Finance?

The type of businesses that will typically use invoice financing will be businesses that sell a service or product and then incur a long wait to be paid. Payment terms can range from 14 – 90 days, which can cause a huge cashflow whole, especially when going through a growth period. 

The industries that typically use invoice finance are. 

• Industries that sell on 30-90 day credit term.
• Industries that employ lots of staff that have to be weekly or monthly
• Industries that work on a seasonal basis and therefore have cashflow shortages at certain times of the year.
• Industries that that need cash to keep a large stock holding so sales can be met.
• Industries that where customers pay slowly such as large retail chains.
• Industries where there are in-house staff accounts available to collect debt.

Why Invoice Financing 

According to a number of studies available around 80% of businesses fail due to poor cash flow. In the UK, there is currently 58% of SME businesses that are awaiting on late payments. It is clear cash flow is a huge issue in the market and invoice financing works as a great plug for cash flow gaps. It can create immediate cash injections when money is required. It can also be a great tool for helping businesses scale. 

As business go through a growth phase, the investment in people, marketing and other costs can be huge upfront costs. If you then include the fact that these businesses are then waiting 90 days to be paid by their customers it can cause a recipe for disaster. Invoice financing is a great flexible tool that will also grow at the same pace as your business is required. This can be a huge benefit when going through a huge growth curve. 

How Can Mesa Financial Help? 

As with most financial products in the lending market, invoice finance facilities are extremely complex. Banks take advantage of this and will always pitch as high as they can in terms of fees and pricing structures. Having a good adviser on your side through this negotiation can be hugely beneficial and will make sure you are getting the correctly structured facility for your business.