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Invoice Finance

Understanding Invoice Financing

According to the EU Federation of Factoring and Commercial Finance, the invoice financing industry across Europe grew by a whopping 7.5 percent in 2014, showing that more and more businesses are opting for this form of alternative borrowing. However, understanding of alternative finance products such as invoice financing is still lacking, so what is it that businesses really need to know?

Invoice financing offers small businesses an opportunity for fast access to funding to facilitate brand growth and development. The way it works is simple – sales invoices for goods and services are ‘sold’ to a lender, who provides an agreed percentage of the cost instantly – usually within 24 hours. The percentage will vary by lender but is typically between 70 and 90 percent of the total cost. What this means is that businesses have immediate access to their earnings, rather than having to abide by their payment terms, which could be anywhere from 21 to 60 days on average. Once a client has paid their invoice, the lender will provide the remaining percentage, less any arrangement fees.

Types of Invoice Financing

The term ‘invoice financing’ covers two different types of lending. Both involve borrowing a percentage of an unpaid sales invoice, but the logistics behind the two forms is different.

  • Invoice Factoring

    Invoice factoring is an excellent choice for start up businesses and very small businesses who do not not necessarily have the internal resources required to adequately manage accounts receivable. With invoice factoring, the lender takes over all aspects of sales ledger management, including taking invoice payments directly from the client, and contacting customer regarding overdue invoices. This can free up internal resources to focus on brand growth. The downside is that clients will be dealing directly with a lender, so will be aware that the business is involved in factoring.

  • Invoice Discounting

    Invoice discounting is the second type of invoice financing, and is particularly suited to larger businesses and companies with a dedicated and capable accounts team. In this instance, the borrower retains full control of the sales ledger – the role of the lender is simply to ‘bridge the gap’ between issuing an invoice and receiving the payment. The primary advantage of invoice discounting for businesses is that clients will still deal with the company itself, so do not need to know that a business is involved in factoring. The business will be wholly responsible for repaying the lender.

Arranging Invoice Financing

While invoice financing – both factoring and discounting – was once quite rare, today it is one of the most popular forms of alternative finance for business. This means that there are many providers offering invoice financing deals of up to 90 percent of the total invoice cost. Businesses are being advised to compare invoice financing deals online to identify the most suitable and affordable lender for their needs. Check out to find the best invoice financing for you.

Invoice Financing: Fleeting Trend or Here to Stay?

Invoice financing is currently a hot topic within the business loans world, but is it here to stay, or merely a fleeting trend? What we’ve seen over the past few years is that financial products tend to come and go, with bridging loans perhaps being one of the best examples of loans falling out of favour. Are we expecting the same to happen with invoice financing, or will this type of loan be around for a while?

One of the main reasons why loans fall out of favour is because the risk involved tends to outweigh the benefits. That’s exactly what we saw happen with bridging loans – for borrowers without a solid exit plan, bridging loans were extremely risky, not only for the borrower, but for the lender, too. When there’s risk involved, approval rates are very low, meaning it’s difficult to gain access to funding.

Why is Invoice Financing Becoming so Popular?

The rising popularity of invoice financing all comes down to perceived risk – or lack of it! The way that invoice financing works – by selling unpaid sales invoices to lenders who provide an upfront payment totalling an agreed percentage of the invoice total – means there’s actually very little risk involved. Business have a solid exit plan in the form of their projected accounts receivable. No nasty surprises!

Here are just some of the reasons why perceived risk is typically very low for invoice financing:

  • >> Money is lent based on cash that is already owed to the business
  • >> Businesses have a solid exit plan in the form of projected accounts receivable
  • >> With invoice factoring, lenders take responsibility for their own repayments
  • >> Businesses can identify suitable repayment terms by comparing lenders online

Giving Freedom to Businesses

As we’ve looked at, one of the reasons why invoice financing seems like it’s here to stay is because it’s much easier for businesses to access funding through this sort of alternative business loan due to lower perceived risk. However – there is a further reason, and that’s the many benefits that invoice financing can bring to a business. Invoice financing opens up doors, especially to small businesses, for growth.

With the ability to receive what is essentially a ‘cash advance’ for businesses, companies can grab development opportunities as they arise, without needing to wait on clients to pay their invoices. For smaller businesses, invoice factoring can also be hugely beneficial, as the lender takes full control of accounts receivable, freeing up your internal resources for more productive tasks and duties.

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What is Invoice Financing?

Invoice financing is a type of alternative business loan that’s revolutionising the way small businesses access essential funding. Unlike traditional business loans offered from high street banks, invoice financing is typically much more informal, with higher approval rates and more attractive lending terms.

So what is invoice financing? This alternative business loan involves ‘selling’ your unpaid sales invoices to a lender, who will essentially provide you with a cash advance. There’s no need to worry about the payment terms on your invoice, or be concerned with late payments that could leave you in the red. Instead, you’ll have instant access to the cash you’re owed, which can help you grow your business.

Types of Invoice Financing

What many businesses love about invoice financing is that it’s really quite flexible, and there are different types of invoice financing to choose from depending on your individual circumstances and business requirements. The two types of invoice financing are invoice factoring, and invoice discounting.

Invoice factoring is a more comprehensive type of alternative loan. It’s the ‘full package’, so to speak. When you sell your unpaid sales invoices to a lender, the lender becomes responsible for ensuring they’re repaid by your clients. Invoice discounting gives you a little more control – you retain responsibility for ensuring your clients pay their invoices, and for ultimately repaying your lender.

How Does Invoice Financing Work?

Invoice financing may seem quite complex, but the processes are actually very simple. These are the steps that your business can expect to go through when entering into an invoice financing agreement:

>> Your business will select an invoice financing lender. The best way to find terms and conditions to suit your business is to compare invoice financing lenders at
>> You will arrange the type of invoice financing that you require directly with the lender. This will either be invoice factoring or invoice discounting, depending on your individual circumstances.
>> Your lender will ‘buy’ a percentage of your sales invoices. The percentage will be agreed in advance. This finance is now instantly available to use for business growth and development.
>> You will repay your lender once your clients have paid their invoices in full. Depending on the type of invoice financing you choose, your clients may be able to pay your lender directly.

One of the reasons that invoice financing is becoming so popular among businesses is due to the high approval rates. As you can see from the invoice finance process, there is relatively little risk involved. The money that is lent to a business is money that the business is already owed. There’s a built in ‘exit plan’ in place with invoicing financing, that gives both lenders and borrowers greater peace of mind.

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Who Should Consider Invoice Financing?

As alternative financing for businesses becomes more and more popular, we’re beginning to see a wealth of options available, including crowdfunding, pension financing, and invoice financing. So how can businesses make the right decision? It’s important to remember that not every alternative finance product will suit every business, so it’s worth taking the time to find what works for you. Here are just some types of businesses that may find that invoice financing is the most effective decision for them:

  • Businesses Refused Traditional Business Loans

If you’ve been refused a business loan from a high street bank, you may be wondering what your options are. Many businesses are beginning to look into alternative finance, particularly invoice financing. As businesses have a solid exit plan in the form of unpaid sales invoices, invoice financing lacks the same level of risk as traditional lending. This means that many businesses are being approved for invoice financing, even if they’ve been refused elsewhere.

  • New Businesses and Startups

In order for new businesses to grow, develop, and make a name for themselves within their niche, it’s essential that opportunities are seized. However, opportunities can sometimes pop up when you least expect them to. This means that having quick access to finance is vital for new businesses. While traditional business loans can often be a very long, drawn out procedure, alternative financing arrangements, like invoice financing, are typically completed much quicker.

  • Smaller Businesses & SMEs

Business loans are primarily focused on providing companies with the financial resources they need in order to develop – they’re not usually designed to make internal processes more streamlined. That’s where invoice financing really stands out from the crowd. Invoice factoring is a type of invoice financing that delegates complete control of accounts receivable to the lender, which is ideal for smaller businesses and SMEs without a dedicated finance department.

If you think that your business would benefit from invoice financing, why not find out more? By completing a quick and simple online form here at, we can put you in touch with lenders and investors who are ready and willing to help you develop your company further. And if invoice financing doesn’t quite sound right for you, don’t worry! We’ll help you compare different types of alternative finance loans to find what you’re looking for. The right fit is out there for everyone!