Invoice finance is a good option for SMEs looking for a way to boost their cash flow to avoid being strangled by late payments. Not only that, but it’s also a viable way for start up businesses to get access to funds as well as being useful for covering shortfalls, wages and taxes at the ends of the month. So, if your business is eligible for invoice finance, which option should you choose?
Factoring is a flexible option for small businesses. It works by lending money against the value of your customer invoices – if your company issues invoices on a 30, 60 or 90 day basis then you could well be eligible. A factoring lender can release up to 90% of the value of an invoice within 24 hours, with the remaining funds being released when the customer has paid, minus a small lending fee.
Factoring grows with your business. It’s ideal for companies who need assistance with their sales ledger as it offers a full credit control service – the factoring lender will take over invoice collection with customers. This means if your business doesn’t have a dedicated finance department, as is true for many small businesses, you won’t need to worry about debt collection or chasing customers.
This works in a very similar way to factoring although your business will retain all collection responsibilities with customers. Medium sized businesses will often opt for this if they want greater discretion and want to retain control over their customer relations. With invoice discounting, customers will be unaware you are using a factoring service, but your business will have all responsibility for collecting the balance of the debt. Slightly larger businesses with a more secure infrastructure often choose this option.
Whatever size your business is, there will be an invoice finance option for you.