Would you like to find out about invoice finance? To the uninitiated it can sound quite complicated, but armed with the right knowledge you’ll find it’s a flexible and straightforward solution. We’re going to give you the information you need to answer your questions: what is invoice finance, how exactly it works; the benefits it can offer businesses of different ages and stages; the key needs it meets by industry; and why people prefer it as the finance solution for their company. Ready to find out why invoice finance is becoming so popular?
What is invoice finance?
Invoice finance makes it possible for a company to use money that has been earned but not yet received/paid – so is effectively trapped in unpaid invoices.
To do this, a business sells their unpaid invoice (or invoices) to a finance company. The finance company pays out a percentage of the total value of the invoice – usually between 80 and 90% – and holds on to the rest until the invoice has been paid by the customer. Once the customer pays the invoice, the finance company collects their fee and pays the remainder back to the company.
Why do companies use invoice finance?
There isn’t one specific type of company that can benefit from invoice finance – it can benefit businesses across different industries or stages of development. At the most basic level all you need for it to work is to sell a product or service to other businesses, and to manage their payments through an invoicing process.
Invoice finance benefits companies who:
- have customers with long payment terms
- have limited available cash and need to make funds that are locked up in unpaid invoices available
- deal with seasonal highs and lows
- have an opportunity to grow but no available cash to support it
- would like to make the most of early payment discounts
- are new and/or growing, and can’t access traditional lending facilities
- have a high concentration of their business with one or more customers.
What are the real benefits of invoice finance?
Invoice finance truly is both flexible and smart. We spoke to some of our customers and referral partners to understand the benefits that they enjoy.
- There’s no need to borrow more than you require – you can choose to sell one invoice or many in order to meet your needs. This flexibility in funding levels means you can manage your debt carefully and therefore manage your costs.
- It really is a short term solution so your agreement only lasts until your customer pays the invoice – meaning you can switch it on or off as you need it.
- It doesn’t matter if your company is just starting up or well established – it can adapt to your circumstances and your needs. This takes away the need to meet extensive traditional lending criteria such as providing real estate security.
- Your growth does not need to be limited by your asset value. As your business grows so does the number of invoices available to be funded against – so you can take on new business as the opportunities arise.
- Long payment terms needn’t put you off signing new customers. If you need to get access to cash before your customers pay you – simply sell the invoice to a finance company and you’ll have the funds you need to manage the costs that need to be dealt with now.
- If you’re experiencing highs and lows of cash flow in seasonal business, invoice finance can be a useful tool to smooth out the bumps and help you stay in control of day to day costs.
- It’s not always possible to plan for the future. If you face an unexpected cost or loss of funding, invoice finance can be a useful tool to keep your cash flowing until you find the right solution to get your finances back on track.
- Invoice finance means that you can control the ownership of your business in a way that works for everyone involved. From maintaining balance in partnerships to transferring ownership – invoice finance can be adapted to suit your needs.
How can Invoice Finance benefit different business stages?
Start up business
Funding a new business is a potentially risky investment – it’s acknowledged that over 90% fail before they really have a chance to get started. So getting hold of funding at the start of your business journey can be a very tricky process.
The good news is that once your first invoice has been issued, you can use invoice finance as a way of injecting cash into your business. You’ll get access to the cash you earn faster, giving you the funding you need to invest in equipment, staff, raw materials or goods, and more.
When your business grows your costs do too – and while the flow on impact is that your sales will grow as well, there’s usually a time lag between paying for the materials and receiving the payment from the customer. How do you manage this gap when costs are increasing and opportunity is knocking at the door? Invoice finance is not constrained by asset based security so as you grow, your potential for funding does too. With access to the cash your business needs there’s nothing to hold you back from seizing new growth opportunities.
There’s a misconception that businesses in their mature phase no longer come across cash flow shortages. But if you’re floating your business; changing your management structure or partner; or investing in new markets or products, you may find that you’re facing a shortage of cash that’s stopping you from realising your opportunities. Invoice finance can give you the cash flexibility that you need.
How can invoice finance benefit different industries?
When you’re in business you recognise that cash flow challenges can arise because of circumstance, and can also be specific to the industry within which you operate. Invoice finance is a recognised solution across many industries, including: labour hire; engineering; earthmoving; transportation; importing; manufacturing; wholesale; and many more. Clients who choose Fifo Capital cite speed, flexibility and excellent service as three of the reasons they are happy. And they choose invoice finance because they have unique needs that have to be fulfilled. Here are a few examples of the industry-specific benefits of invoice finance.
Invoice finance is used to: finance an existing order until its arrival in the country; manage costs of stock for distribution; provide finance for deposits and make it possible to meet payment terms; deal with duty and GST costs.
Invoice finance makes it possible to: manage day to day operating costs; invest in materials for the next contract; have the cash flow required to make taking on a new contract possible; cope with one-off costs such as unexpected maintenance or repair.
Invoice finance is flexible enough to: manage the divide between cash out and cash in; provide the cash flow tools to make the most of opportunities for growth; support day to day operating costs; boost your funding to manage an unexpected cost.
Invoice finance is a good solution for: keeping on top of day to day costs even when on the road; dealing with unexpected one-off costs such as vehicle repair or replacement; paying for a growing fleet with cash released from unpaid invoices.
Invoice finance allows businesses in the wholesale industry to: get the funding they need to be able to take advantage of supplier discounts or best prices; deal with day to day costs; fund growth or new business ventures; move quickly to protect margins.
Invoice finance is recognised by those who use it as an adaptable and flexible solution. Whatever the age or stage of your business, invoice finance can be used to support and meet your needs by boosting your cash flow. Being able to choose which invoice you finance and when, allows you to manage your levels of funding in order to maximise your profitability and control your costs. The flexibility also means that invoice finance can adapt to meet a wide range of needs across different industries. Because of the long list of situations that invoice finance can be adapted to, it really is no surprise that many business no longer see it as an alternative funding solution and instead consider it their preferred solution. If you’re taking the opportunity to get your cash flow under control and would like to talk to one of our experts – call us today on 0800 86 34 36 .
Invoice Finance, Cashflow Solutions and Business Loans
Fifo Capital are experts in cashflow solutions for small to medium business. Find out more about invoice finance and our fast business loans here: