Is your business struggling to recover following the COVID-19 pandemic? Do you want to take on larger, more lucrative contracts but worried about managing your cash flow and getting stretched too thin? 

If this sounds familiar, then Invoice Finance might be the quick solution to your business needs. Invoice Finance bridges the gap between when you sell your goods or services and when you receive the payment. It provides a cash injection when you need it most, so you’re not having to wait for payments to clear, before taking on more work. 

Invoice finance allows you to channel all your energy into growing and investing, so you can wave goodbye to the hours and days spent chasing payments. Sound like a good option for your business? If you want to know more, here are some common questions and answers about this lesser-known, but highly effective finance service. 

What is Invoice Financing (IF)?

Invoice Financing is a form of short-term borrowing designed to help businesses manage their cash flow more effectively. Acting as an alternative to the traditional overdraft, it gives businesses the working capital they need to meet short-term obligations, customer demand and grow at a pace that works for them.

It’s not a business loan, and it’s important to make that distinction as the funds are borrowed against invoices outstanding. Loans and Asset Finance should be considered for medium to long term funding.

How does Invoice Financing work?

As the name suggests, Invoice Financing is a form of lending guided by invoices. It involves a third party who advances cash against your unpaid invoices.

All you need to do is upload your invoices to an Invoice Finance provider via a real time online portal and a percentage of the invoices will be made available to draw into your working bank account. Once the invoice is paid and the service charge of the provider is covered, you’ll receive the remainder of the sum.

This type of funding allows your business to continue providing goods or services to your customers, without being held back by late payments or if you have 60 or 90 day payment terms. It can really help the day-to-day running of a business and can speed up cash flow. Customers will also benefit as your services are more reliable and consistent, instead of being determined by whether you’ve been paid on time.

What are the main advantages of Invoice Finance?

It’s low risk and confidential – as the loan is based on money that’s due to come in, it’s relatively low risk for the borrower and lender. In addition, an invoice discounting agreement is often confidential, helping you protect your customer relationships.

It’s flexible and helps you free up time – Invoice Finance allows you to increase the fund request as your revenue grows, and scale back when you need to. It also helps you work more efficiently, as any time usually spent chasing payments can be spent elsewhere in your business. Funders offer the service of credit checking and credit control if required.

It supports business growth – The more invoices you issue, the more you can borrow, and unlike a bank overdraft, it grows with your business.

Helps with managing cash flow – As you don’t have to wait for payment of invoices, cash is available to help you manage your liabilities, reinvest in your company and continue to produce more stock to sell on to customers.

Helps with customer retention – Being able to pay any business overheads and invoices on time is crucial when it comes to maintaining your reputation and liquidity position overall. 

Flexible Offering - Funders now have options for selective funding and the ability to protect the outstanding invoices against insolvency.

What are the disadvantages of Invoice Finance?

Not everyone is eligible – Invoice Financing is usually only available to SMEs and larger businesses with more than £100,000 annual turnover.

Proof required – Lenders will require evidence that your credit control processes are robust, and your customers are reliable. 

Businesses can become too reliant – Some businesses can become too reliant on Invoice Finance, and find it hard to function without the ‘safety blanket’. This can be damaging in the long run.

Can Invoice Finance help my business get back on track after a difficult time?

The short answer is ‘yes’. Businesses can be impacted by all sorts of factors, whether social, economical, or environmental, and it is often challenging to stay afloat, let alone grow, in these increasingly uncertain times. 

The COVID-19 pandemic caused many businesses to suffer. If your business was impacted, finding a finance service to help you recover and build back confidence can be hugely rewarding. You’ll be able to scale back when you need to, and as you don’t have to wait for payments to be cleared, cash is available to help you reinvest in your company where it's needed.

How does the Recovery Loan Scheme (RLS) differ from Invoice Financing (IF)?

In October, the government’s Autumn Budget 2021 announced the extension of the UK-wide Recovery Loan Scheme by six months, meaning businesses can now apply up until 30 June 2022. But how is it different to Invoice Finance? 

Here are some of the T&Cs to be aware of:

• Borrowing T&Cs – RLS lets eligible businesses apply for up to £2 million and lending is subject to credit and fraud checks. Borrowers have to pay interest and fees under the scheme. 
• Who can apply – UK businesses of any size can apply for a loan or overdraft on the RLS, however there are certain criteria that must be met.  
• ​Interest and fees – you have to pay interest (and fees) from day one under RLS because the British Business Bank will no longer pay your interest and fees for the first 12 months.
• Loan size – there is no turnover restriction under RLS but the maximum loan amount is now capped at £2m from January 2022 to June 2022.

Which industries and sectors can benefit from Invoice Finance?

Manufacturing and engineering – Invoice Finance lets you access funds in raised invoices to help cover outgoings such as factory overheads, staff wages and suppliers, or to invest in more engineering machinery, equipment and software. 

Haulage and light commercial vehicle businesses – Any cash tied up in your ledger can be released within 24 hours, helping you meet fuel costs, keeping your vehicles moving to transport all goods to their final destination quickly and efficiently.

Courier – Invoice Finance can help your courier business by enhancing capital enabling you to pay employees and providers without the added concern about consumers paying late.

Construction – Invoice Finance enables construction firms to unlock money tied up in outstanding invoices, allowing contractors or construction firms to bid for new contracts and invest in new materials. 

What can we do for you? 

We hope this blog has helped you see that there are many benefits to using Invoice Financing – it doesn’t have to be a last resort!

Finding the right lender is key, and that’s where we can help. At Thames Valley Asset Finance, we know how important it is for your lender to understand your needs so you can recover your business safely and with confidence. 

It should be a zero-pressure relationship guided by the rate at which your business is growing. There are lots of different finance options available. If your business needs support, get in touch with Mark Riches, our in-house invoice finance expert, for more information.