Invoice funding has been around for more than 50 years, and it’s one of the most effective cashflow tools businesses have.
Also known as invoice financing or factoring, it’s used by more than 35,000 businesses in the UK to redeem their invoices faster.
This is your complete overview of invoice funding and all the ways it benefits your business.
By using invoice funding, businesses – particularly small businesses – can get the benefits of positive cashflow without some of the fish hooks that exist in traditional lending and other financing alternatives:
These are some of the main reasons why thousands of small businesses are using invoice funding to help them invest and grow.
So how does it all work, and what are the important things to know about invoice lending?
It’s a form of business lending where a business effectively sells one, or some of their invoices in exchange for having them paid almost immediately.
For example, a business will invoice a client, giving them a period of time to pay the invoice. Knowing the client won’t pay straight away, the business can submit the invoice to an invoice funding company to have it paid there and then.
Once the client pays the invoice, the business repays the invoice funds to the funding company, plus a small fee.
The reason it’s so beneficial is invoice funds can take time to be realised. Customers commonly wait until the due date of an invoice to pay it, and many others miss due dates altogether. Late invoice payments can be highly detrimental to business cashflow, and this issue is exacerbated when there are overheads that need to be paid on time.
If the business has a bill owing, or wants to invest back into its operations, invoice funding helps immensely. It’s also been called invoice discounting.
As well as being quicker and easier to get than traditional lending, invoice financing is quickly repaid. Businesses don’t have to carry the liability of large loans on their books for a long period of time – instead, the balance is repaid as soon as the client pays the invoice.
For small businesses in particular, cashflow is key. They run off tight margins, don’t have big, bursting bank accounts, and rely on a steady stream of cash flowing through the business to pay bills and staff, and reinvest back into the business to continue to grow.
Factoring can help improve your business cashflow, providing control, clarity and convenience in a range of scenarios:
As we’ve mentioned already, it often takes a lot of time and effort to get a loan from the bank, and loans commonly have a large minimum amount. That means carrying at least a $100,000 liability on your books for as long as it takes to repay it (plus the interest and other fees you’re charged).
If you need a smaller amount, or you need it sooner than the next few weeks, traditional lending can’t really help you. At the same time, as the saying goes, often to get a loan, you first have to prove you don’t need it.
By using invoice funding companies rather than banks, you don’t have to commit to long term contracts. You don’t have to satisfy exhaustive credit checks and you get your hands on money that is already yours in the first place, just a little bit sooner.
With a bank loan, you’re charged a set amount at the beginning of each month. Regardless of whatever else is going on in your business, that amount goes out of your account like clockwork – which can be an issue, particularly if some of your customers are late paying their invoices.
However, when you get lending through business invoice funding, that lending is only paid back when your customer pays their invoice.
The balance is also paid back in full, which means no carrying liability over into the next month.
Invoice funding enables business owners to focus on continuing their growth in a range of ways:
Business owners are already time poor, and have much better things to do than fill in detailed lending application forms or chase customers to pay overdue invoices.
Conveniently, invoice finance can be paid into your bank account within hours. Funding is linked to your cloud accounting system, allowing business owners to select the invoices they’d like paid.
There’s no paperwork involved in setting up an account, and once it’s done, business owners can have invoices paid the same day they request funding.
As a business owner, your credit history is on the line every day, with all manner of wages, bills, tax, rent and other expenses to pay. Without positive cashflow to cover these obligations, businesses can start to lag behind.
For the many small businesses that are financed against personal assets, this problem is very close to home – literally.
Invoice financing reduces the risk of falling into payment problems yourself, due to having invoices go unpaid.
As we’ve mentioned, setting up an account is quick and easy. It’s paperless, and doesn’t require anywhere near the level of scrutiny that goes into traditional forms of finance.
With an invoice funding account set up and integrated with your invoicing software, all you need to do is submit the invoice(s) you want to be funded.
Traditional lending is a blunt tool to get bulk funding, but there is much greater flexibility in invoice funding.
You don’t need to use it for all your invoices – only when you need it. It’s just a case of selecting the invoices you want funding for. There are no obligations to get certain amounts, or to use financing a set number of times within a set period.
This gives business owners control over when they get financing and how much they draw on.
Invoice funding is tailored specifically to small business requirements, overcoming many of the hurdles that exist through other funding means. This makes it a fantastic option for any business owner who wants greater control and flexibility over their financing, without the costs of a loan.
An unfortunate reality of doing business through invoices is that many people won’t pay their invoices on time. Cashflow issues that stem from unpaid invoices can threaten to cripple businesses, and invoice financing targets this very problem.
If you have a business that can be vulnerable to cashflow issues, invoice funding can help in a big way.
FundTap is an invoice funding company that’s designed to be quick and easy to use, with a single transparent fee. You are in control; you choose when, or if, to submit invoices for funding to match your needs. FundTap is much easier than other providers that can charge multiple different fees that lock you into ongoing commitments.