A healthy cash flow is what keeps every business ticking over and on the right path, with a deficit of cash being detrimental to a business’ ability to pay wages, buy in stock, invest and grow.   

One of the many reasons for unhealthy cash flow is late payment of invoices, with businesses often stung by bad payers, late payers and businesses with long payment terms. This has only become more prominent during these testing economic conditions that we find ourselves in. With some companies working with payment terms up to 120 days, businesses can be waiting months to be paid for the services or goods they have already provided. 

For this reason, an ever-growing proportion of UK businesses are utilising invoice factoring and invoice discounting; two financial products that allow companies to raise cash via unpaid invoices. 

In this blog post, we look at the many advantages of invoice factoring and invoice discounting, with the aim to educate companies on the many useful resources out there.

What is invoice discounting?

Invoice discounting is a finance resource whereby businesses can secure funds against their outstanding invoices. The invoices are essentially used as collateral, allowing businesses to limit the financial impact of unsettled invoices on their cash flow. 

Invoice discounting provides businesses with access to working capital while waiting for their unpaid invoices to be settled.

One of the many advantages to this form of cash flow finance is that the business maintains complete control over its sales ledger and remains in charge of chasing payments and invoice processing. When using invoice discounting, the business’ customers will not be aware that they are using a cash flow facility, therefore will have no impact on their perception of the business and its financial stability. This is why businesses passionate about confidentiality find invoice discounting an idyllic solution to cash flow issues.

The main reasons businesses opt for invoice discounting is to access funds for;

  • Recruiting staff members 
  • Purchasing stock and equipment the business needs 
  • Scaling operations 
  • Catching up with payments and stabilising finances 

What is invoice factoring?

Invoice factoring is a variety of finance whereby a business can sell its invoice/invoices to a third-party company. When selling invoices to an invoice factoring company, the third-party company will provide a credit control service to recover payments. This is something that your debtors will be aware of. 

In short, the business will invoice their client, with the invoice stating a disclosure notice that it is owned/assigned to the factoring company. Then the factoring company will pay between 90% and 95% of the monies to the business before the invoice is settled.

When the invoice is settled, the factoring company will pay the business the remaining balance, minus their fee. 

Fees are worked out on a percentage basis and can fluctuate hugely from one lender to the next. This is why businesses must use a credible finance broker when seeking invoice factoring solutions. 

Invoice factoring is regarded as a quick way to rectify cash flow issues and ensures businesses are paid for the goods and services they have supplied promptly. It is also a suitable solution for businesses that are time poor and do not have sufficient resources to chase money from clients. 

Want to learn more about invoice finance?

To discuss invoice discounting and invoice factoring solutions for your business, contact our team of financial experts today. They will be sure to find the right option and lender to suit your business’ financial needs.  

Why choose Simply Factoring Brokers?

Here at Simply Factoring Brokers, we are an established finance broker, having great relationships with invoice finance companies across the country. With a vast selection of lenders within our network, we are confident that we can match you with the perfect funders quickly.

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