Invoice Financing Explained

Invoice financing could be for you if you need to generate cash quickly. So, what is invoice financing? Put simply, invoice financing involves using your unpaid invoices to boost your cash flow. There are normally two forms of invoice financing available to you, which are invoice factoring and discounting. With invoice factoring, you essentially sell your invoice to an outside company who then chase up the payment themselves. Factoring could be your best option if you don’t think you will be trading with the company in question again, your invoice is overdue, you don’t have the time to pursue payment yourself or if you don’t mind the client knowing you have worked with an external company to resolve the situation.

Looking at your Options

If you do have a good relationship with your client and feel this could be jeopardised by them learning you’ve used an outside company, invoice discounting could be for you. With invoice discounting, you borrow money against the unpaid invoice and settle your debt once payment has been made. This could be right for you if you expect to sell products and services to the company again, your invoice isn’t overdue and you simply need money early or if you do have the time to pursue payment.

Make an Informed Choice

You’ll normally get to keep between 85-90% of the money owed to you when you use an invoice finance company. More and more companies are enlisting the services of invoice finance companies when they need to unlock the value in unpaid invoices. Whether factoring or discounting is right for you will normally depend on your circumstances and relationship with your client. It could be beneficial to speak to three or four companies about what they have to offer before coming to a decision on who to use.