Why consider Invoice Finance and how does it work?

When you complete a job, there is a reasonable expectation that you will be paid. But, in reality, that isn’t always the case.

You can be waiting weeks or months for an invoice to be settled. Sometimes a delay in payment in full is agreed in advance, with credit having been offered as a way to help a customer make a purchase. But this can cause an issue with cash flow, as you’ve spent the money delivering the product or service and received little or nothing in return.

Should this delay between service/product delivery and payment become an issue, a company will often look to a business loan to plug the gap. However, traditional forms of funding, like bank loans, can take anywhere up to three months to come to pass. In that time, those unpaid invoices and other running costs can rack up, hindering business growth.

How can you guarantee that invoices are paid?

While you’re powerless when it comes to making sure customers pay on time, there is a way to guarantee that their invoices are paid within the time frame that you need the cash.

Invoice financing involves selling your accounts receivable (invoices) to a third party for a percentage of their value. It’s a relatively underused solution, as not many people know it is a viable option for them in comparison to other sources of business funding. 

With invoice financing, you can expect to see payment into your account within 24 hours of sending the finance company the invoice.

Here’s how it works:

1. You complete the work/deliver the service as usual
2. You then send your invoices to your supplier and funder
3. The funder pays you an agreed percentage (up to 90%) within just 24 hours
4. The customer then pays the funder in a bank account registered to your company name (this ensures confidentiality – the supplier will never know they are paying a funder)

Depending on whether you opt for invoice financing or invoice factoring, you can pass on your whole sales ledger to a finance provider or pick and choose what invoices you advance.

What are the benefits of invoice financing?

A 2020 study by Tide found that the average UK SME is chasing five outstanding invoices at any one time. This amounts to an average of £8,500 owed and 1.5 hours per day – or almost 900,000 hours in total, across all SMEs, per day – being used.

When a finance company takes ownership of the outstanding invoices, you can get on with running your business. Some of the main benefits include:

• You get to meet your liabilities and stabilise your cash flow
• It’s not a long-term commitment, unlike a business loan
• It can help your business grow
• You can pay suppliers and staff on time
• It offers better rates than overdrafts
• You could get more cash than with a bank loan or overdraft
• Get up to 90% of invoice value released
• Customers get credit terms, you get paid

So, if you’re finding that your hands are tied from running the business that you want because of unpaid invoices, invoice financing could be the right finance solution for you.

At Bespoke Commercial Finance, we’ll give you options and advise you on which one we think is best for your needs. Our extensive network of lenders means we can guarantee the best deals and rates, as well as same day decisions. 

We’ve gained a reputation for delivering a no-hassle service that goes above and beyond. In fact, 86% of our business is via referral, which is testament to our commitment to putting the customer first, always. 

Get in touch today to find out what we can do for you.