Invoice Financing

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What is invoice Financing?

Invoice financing can help your business with cash flow and is used by some of the UK’s most successful companies. The process involves a third party agreeing to buy your unpaid invoices. Invoice financiers can be part of a financial institution or an independent company.

In the UK there are 2 types of invoice financing.

1. Factoring

Sometimes known as ‘debt factoring’ – this often involves a financier both managing your sales books and also collecting the outstanding balance from your customers themselves. The process tends to be:

  1. The invoice financier will purchase the balance owed to you by your customer when you raise an invoice.
  2. Upfront they will transfer to you a percentage of the total invoice amount straight away (around 90%)
  3. Then they will collect the rest straight from your customer.
  4. They will then make the remaining balance available to you once they have received the money from your customer.

2. Invoice Discounting

The invoice financier does not manage your sales ledger with ‘invoice discounting nor do they chase the debts for you. Instead, they loan you an agreed percentage of the value your unpaid invoices.

The money goes to the financiers as your customers pay your invoices reducing the amount you owe. This then means you can borrow against any new sales invoices up to the originally agreed percentage.

If you use invoice discounting you are in control of collecting the outstanding debts. This means you can arrange it confidentially so your customers won’t find out.


Advantages of factoring:

  • You’ll have more time to manage your business as the invoice financier will look after your sales ledger.
  • you are likely to trade with customers that pay on time as they credit check potential customers
  • better terms can be negotiated with your suppliers by your invoice financier

Advantages of invoice discounting:

  • you are still managing customer accounts which lets you maintain closer relationships with them
  • confidentially is possible, so your customers won’t know that you’re borrowing against their invoices

To find out more about invoice financing and how it can benefit your business or to enquire about prices and quotes specific to you, click below.

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The basics of Invoice Financing


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