What Is Invoice Financing?
Invoice finance is a financial solution that allows you to cash in on outstanding invoices before the invoice period is up.
Typically, you will be able to access up to 90% of your invoice's total value, and you could even see the money hit your bank account within 24 hours.
This can help improve your cash flows, free up funds for operations and investments, and bridge the gap between invoice and payment dates.
How Does Invoice Financing Work?
Invoice financing is like a regular type of loan that you would take out for your business, but you use your unpaid invoices as security.
Typically, you will be able to access up to 90% of your total invoice value immediately. After the invoices have been paid, the remaining value-minus any fees your provider may charge-is then transferred to you.
Say your total invoice value is £100,000 and the invoice period is 90 days, but you could really do with that cash now.
You go to your lender and essentially "sell" your invoices to them.
They have agreed to pay you 90% of your invoice total within 24 hours. You check your bank the next day, and hey presto, there's a cool £90,000 sitting in there for you to do with as you please.
They take the payment directly from your customers so you don't have to waste any time chasing them up if there are any delays or errors.
In 90 days, when the invoices are paid, they will then pay back your remaining £10,000. But they have to make their money somehow, so they're charging you interest and a management fee.
In this case, it's £7,000, so this is taken from the outstanding £10,000, leaving you with a second incoming payment of £3,000.
Despite the fact that the total amount of your invoices was £100,000, using invoice financing cost you £7,000, so you will actually have made £93,000 from them.