Invoice financing

 Compare the best business loans in one place.

It's 100% Free & No Paperwork.

Free process that won't affect your credit rating.

Invoice financing

 Compare the best business loans in one place.

It's 100% Free & No Paperwork.

Free process that won't affect your credit rating.

What is invoice financing?

Invoice financing is a process whereby a factoring company will pay you a percentage of an invoice that is owed to you by a customer. They will then collect the payment from the customer and pay you the remainder of the invoice, keeping a small percentage themselves as a fee. This alleviates issues caused by late payments and ensures constant cash flow. There are two main types of invoice factoring available to businesses; recourse and non-recourse.

Are there different types of factoring?

Recourse Factoring

Recourse factoring is a form of invoice finance where you take on all of the risk. If the customer does not pay their invoice, you will be forced to pay the factoring company and take on the debt yourself. In some cases, you may be able to chase up the debt but it could leave you out of pocket. 

Non-Recourse Factoring

Non-recourse factoring offers you a level of protection. When you sell the invoice on to the factoring company, they agree to take on the debt and the risk, so if the customer does not pay, it is down to the invoice factoring company to deal with that. As you would expect, the fees that you pay for non-recourse factoring are higher than recourse factoring, and there are limitations. Not every factoring company offers non-recourse options and even those that do will only purchase the invoices of customers that have a good credit rating. 

How to choose between whole ledge and spot factoring?

You will also need to decide between whole ledge and spot factoring. Whole ledge factoring requires you to sell all invoices from a particular client, while spot factoring gives you the freedom to pick and choose. If you have consistent cash flow issues, whole ledge factoring may be the best option. But if you just need a short term cash injection and you do not want to pay out lots of money in fees, spot factoring is a better alternative. 

What are the advantages and disadvantages?

Pros

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Invoices are usually paid within 24 hours. 

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You don’t have to deal with chasing up debts. 

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Customers are more likely to pay up when an invoice factoring company is involved.

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Even businesses with poor credit ratings can access invoice finance.

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It isn’t a loan, so it doesn’t show up on your balance sheet.

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Non-recourse factoring guarantees that you get paid on time.

Cons

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Invoice finance usually works out more expensive than other forms of short term business finance, especially if there are extensive admin fees involved.

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Factoring reduces profit margins on each invoice as fees are taken

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Some customers resent the use of factoring companies and it can damage your relationship with them. 

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Some providers insist on long term contracts that cover a large percentage of invoices.

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You rely on your customers having a good credit rating if you want to use invoice financing. 

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When ending an agreement with a factoring company, you will have to buy back all unpaid invoices. 

There are a lot of benefits to invoice financing and it can be a very effective way to boost cash flow. However, it is important that you consider some of the drawbacks and explore other short term lending options before making a decision. 

COVID-19 SME Guarantee Scheme

We are pleased to let you know that we have access to the COVID-19 SME Guarantee Scheme through our alternate lending platform, there are several alternate lenders who will be offering the product.



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