Invoice financing is where a third party agrees to buy your unpaid invoices for a fee. Invoice financiers can be independent, or part of a bank or financial institution.
Also known as ‘debt factoring’ & usually involves an invoice financier managing your sales ledger and collecting money owed by your customers themselves.
When you raise an invoice, the invoice financier will buy the debt owed to you by your customer. They make a percentage of the cost (usually around 85%) available to you upfront.
They then collect the full amount directly from your customer.
Once they’ve received the money from your customer, they make the remaining balance available to you.
You’ll have to pay them a discount charge (interest) and fees - the amount depends on which invoice financier you use.
Advantages of Factoring include:
Can provide a large & quick boost to your cash flow
The invoice financier will look after your sales ledger, freeing up your time to manage your business
Potential customers will be credit checked meaning you are likely to trade with customers that pay on time