Invoice Finance Vs. Bank Overdraft
As you may have already experienced, overdrafts can be difficult to secure. It’s also one fixed amount, which may be great for your business now but not enough to maintain the working capital you need as your business expands.
- Using Invoice Finance means the amount of cash you can access is flexible; it grows automatically as you do.
- Invoice Finance is a way to cleverly utilise the security you have available to you, in this case your book debt, to generate another line of credit.
- Spreading your finances with Invoice Finance will reduce the potential impact of a sudden unexpected shortfall in capital, or reliance on one credit line.
- Overdrafts are also largely dependent on your financial soundness, whereas an invoice financier is more interested in the soundness of your customers and the simplicity of your debt.
- This is a real plus for businesses struggling with cash flow but with sound, albeit slow paying clients
Invoice Financing can offer many benefits to cash-hungry companies, and they take advantage of this type of funding for a variety of reasons. Many companies use invoice financing to reduce the overhead of their own accounts department. Others use it to generate cash, which can be used to expand their business, increase distribution, or simply relieve short-term creditor pressure.
So, How Does It Work?
An unpaid invoice has value. It’s a debt your customer has agreed to pay in the near future. At any one time you’ll have a number of unpaid invoices on your sales ledger. This means your sales ledger has value. So invoice financing companies will ‘advance’ a percentage of the value of your outstanding sales ledger for a fee, often within 24 hours, rather than you waiting 30, 60, 90 days or longer for payment on the product or service you’ve already delivered. Factoring has the added bonus of handing over the responsibility for the collection of that debt to the Factor, freeing up the time it takes for you to chase unpaid debt so you can concentrate on growing your new business. Invoice Discounting allows you to retain the credit control function and management of your sales ledger – this is often referred to as “confidential invoice discounting”
There are many Invoice Finance providers operating within the UK and their offerings are all different. Let Shout Financial Solutions Ltd approach the market on your behalf to ensure that you find the right funding partner for your business.
Please note we are brokers and not lenders.