Invoice finance is a service in which invoice finance lenders purchase unpaid invoices from businesses that need an advance on their payments. This finance facility gives businesses instant access to funds and reduces potential cash flow issues in exchange for an invoice financing fee.

Simply put, invoice financing is a way to turn your unpaid invoices into cash. Instead of waiting weeks or even months to get paid, you receive up to 100% of your invoice value upfront.

You get the money you need to cover your expenses and let the lender chase up your payments in the meantime. Once the invoice is paid in full, the lender will release any remaining payments to you.

It’s quick, efficient, and hassle-free; giving you the capital and time you need to focus on growing your business.

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How does invoice financing work?

Your individual debtors or entire sales ledger are reviewed and, once approved, any outstanding invoices are factored by the lender.

In a matter of days, up to 100% of your invoice receivables will be sitting in your bank account ready to be used. You can use this capital to pay your contractors, and employees, purchase more stock or complete your project.

Depending on the type of invoice financing you choose (factoring or discounting), invoice financing companies take on the burden of chasing your unpaid invoices (factoring) or your credit and collections team takes over the responsibility (discounting).


Why do businesses use invoice finance companies?

Business owners turn to invoice financing because billions of pounds are tied up in unpaid or late invoices every year, a figure that is growing exponentially. This can be an issue for many businesses that rely on a steady cash flow to operate.

Invoice financing is a faster and more flexible way of plugging the cash flow gap in a business. It’s a suitable option for small, medium, and large enterprises. It encourages businesses to sustain their development and grow even larger.


How much does invoice financing cost?

Typically, invoice factoring is made up of a single service fee that is deducted from the outstanding invoice.

In this instance, the lender is also in charge of collecting outstanding payments from your debtors and, therefore, this type of invoice finance is more expensive than invoice discounting.

Typically, invoice discounting costs are made up of two fees, the service fee and the borrowing fee. The service fee is charged per invoice and calculated as a percentage of your turnover, whereas the borrowing fee increments with interest until the client pays their invoice.

Other hidden costs that may be associated with invoice finance facility includes application fees, credit check fees, mailing fees, and processing fees. It’s important to look out for any of these before you sign an agreement.


What is the difference between invoice factoring and invoice discounting?

Let’s take a closer look at each of these options to help you choose the right one from several invoice financing companies in the UK.

Invoice factoring entails a closer working relationship with the factoring company. A business will sell its outstanding invoices to a factoring company at a discount.

The financier then provides you with their professional credit control services so that you can focus on other aspects of your business. This is ideal for SMEs that may not have the time or resources to spend chasing late-paying clients.

Invoice discounting is the most simple form of invoice finance because it’s pure money. You’re in charge of collecting payments and your clients don’t need to know that you’re using a finance facility to advance payments.

Invoice discounting is only available to larger businesses with more established reputations and typically a minimum turnover of £250k. These companies tend to have their own collections team and will be entrusted to collect the payments from their customers by themselves.

Many companies enjoy the credit control service offered by factoring facilities because it gives them more time to focus on their business. Others prefer a more hands-on approach when it comes to collecting payments, as this keeps their use of invoice financing services strictly confidential.

Ultimately, the decision between invoice finance factoring and invoice discounting rests on the size of your company’s turnover, whether you want to collect the payments yourself, and whether you wish to be discreet about the invoice financing facility.

What are the benefits of invoice finance?

There are many benefits associated with invoice financing, the most obvious being instant access to cash and a steady flow of revenue for your business.

#1 Access to Capital

Having access to capital can help you complete projects on time, pay your expenses, and grow your business.

#2 Startup friendly 

It’s extremely beneficial for SMEs and start-ups who may not be eligible for other forms of financing, like bank loans or overdrafts.

#3 No more chasing

If you’re a small business that doesn’t have the resources to be constantly chasing clients, invoice factoring can help you free up valuable time that is better spent elsewhere.

#4 Spread the love 

Furthermore, factoring facilities can help you screen potential clients and provide valuable insight into their credit and payment history.

Think invoice financing could support your business growth? Book a demo with us and one of the team experts will show you around the platform.

Our platform

Sonovate is an invoice finance platform designed to reduce admin, save time, and let you focus on growing your business. Choose from a funding and back office platform for an all-in-one solution, or just funding to complement existing systems. Giving flexibility at times you need it, or growth engines when the time is right.

Book a short demo with our team at a time that suits you to find out how Sonovate can help your business grow.