The invoice finance Mystery Revealed

Factoring and invoice finance has become an increasingly popular method in recent years for business to deal with the strains of cashflow.  So, what is it and how does it work? 

Natalie of Champ Marketing has a story that is familiar to many small business owners: 

“I was always checking my mail looking for cheques that would pay the immediate bills and emails to confirm epayments. My clients always pay, but their delayed payments meant that I was constantly delaying my overheads. Occasionally, I had to tell employees that I couldn't pay them, or pay my bills later. 

Natalie didn’t need to go into her overdraft or take out a loan, she needed to smooth out her cashflow:  She found a solution through factoring. Natalie says: “I didn’t realise how much stress this was causing until I had the cash to operate the business and the stress was gone.”

Factoring or Invoice Finance is a method of turning your invoices — which are customer promises to pay at a later date — into cash immediately. You get paid by us, and then we get paid by your customer.

Here’s a normal transaction you’re familiar with:

1. Small Biz Ltd provides a product or service to Big Biz Ltd.

2. Small Biz then issues an invoice for that product or service to Big Biz, which will pay 30 days or more later

3. Small Biz scrambles to make payroll and pay expenses since it hasn’t yet been paid

4. Big Biz pays Small Biz 30 days later

With invoice factoring, the basic elements of the transaction remain the same, but the small business gets cash faster, so Small Biz Ltd can meet its obligations and look towards getting the next piece of business in.  

However, there are additional benefits to factoring versus other financing types.

• Speed: We can put the cash in your bank within 24 hours 
• Save time and hassle: A bank’s process requires lots of paperwork and time for small business loan, we can work within a short time frame, and with less paperwork.
• Poor or no credit is OK: If your business has poor credit, you can still get funding even if you do not qualify for other types of finance.  Our factoring facilities are based on the quality of your customers’ credit — not only your own credit or business history.
• Your bank balance doesn’t matter: We can provide funding since factoring provides a line of credit based on sales, not your company’s current cash.
• Flexible financing amount: The amount available to you through factoring is only limited by the amount of invoices you have. The business’ credit line can increase naturally as the business grows and builds its relationship with the invoice factoring company.
• No debt: Factoring is an advance on payment that is already coming to you, not a loan, so it does not appear as debt.
• Outsource credit control: Depending on how hands-on your factoring company is, they might remove some administrative burden of dealing with accounts receivables and potentially even collections on delinquent invoices.