Invoice factoring is a short-term borrowing that enables your business to borrow finance against the invoices issued to your clients. It is used in many industries and sectors, including transportation, retail, construction, and consumer goods.

How Invoice Financing Works

The invoice financing concept is simple. Rather than waiting for weeks for customers to pay your invoices, you can secure an advance from lenders to facilitate the running of your business. You can qualify for invoice financing if your company utilizes invoices for work. Invoice financing ensures your business has the continuous cash flow to carry on its operations to facilitate continuity.

Types of Invoice Financing

Most invoice financing options provide timely access to finances owed by your customers. There are differences depending on who regulates the sales ledger and whether your clients know the arrangement.

Invoice Discounting

Invoice discounting allows businesses to borrow finance against the overall value of unpaid invoices. The lender advances up to 85% of the invoice value, and charges are deducted from the balance. The provider does not provide debt collection service or manage any business sales, allowing you to maintain control of payment collections and issuing reminders.

Invoice Factoring

The invoice financing option allows the factoring company to control the sales ledger operations of the company. The provider provides the business with a given percentage of various invoices upfront before obtaining the money owed by clients. At least 95% of invoices are advanced, and the provider pays the company the rest of the invoice value upon receiving the total amount and deducting the interest and fees.

Criteria for Securing Invoice Financing

Your business must meet the laid down criteria to secure invoice financing. Most financial providers insist on established trading history and a minimal annual turnover. Other considerations include:

  • A strong credit history
  • Evidence of the trading history
  • Minimum turnover requirements
  • The client base of your business
  • The overall outstanding amount of your total invoices
  • Your business visibility

You must shop around to secure the best deal if you have met the above criteria. The fees charged by multiple providers vary, and you must take your time to assess customer feedback and compare available options.

Invoice financing is crucial for minimizing cash flow issues. Ensure you are clear regarding the terms and fee structure involved in the agreement before applying for invoice financing. Reach out to us at 18 Sierra Financial to secure invoice financing to facilitate the day-to-day operations of your business.