How invoice financing can help your business

How could invoice financing help your business?

In an economy in which finance can often be difficult to come by, more and more small and medium sized businesses are looking to alternative finance options as a way of raising much needed capital.

One such means is invoice financing. Though it doesn’t have to be, the world of invoice financing can often appear confusing and difficult to manage. With this in mind, we decided to produce a short guide to the service and how it may benefit your business.

What is Invoice Financing?

Invoice financing is actually an umbrella term for a wide variety of practices. Usually, it is considered a short term financing option that allows money to be drawn against a business’ sales invoices before a customer has paid. However, the precise details can vary. While some forms of invoice financing involve the financier managing your invoices and collecting money on your behalf (often,called ‘invoice factoring’), others will see a financier lending money against your unpaid finances (known as ‘invoice discounting). The decision on which is better for your business largely depends on circumstance and the specific conditions your company faces.

How can it help SMEs?

Invoice financing can help SMEs in a variety of ways. Primarily, it is viewed as a way to improve a company’s cash flow situation, freeing up capital when they need it most and lessening the reliance on prompt payment of invoices. However, there are a number of other advantages. For instance, if a financier is managing your invoices, it frees up more time for you to focus on your business. With invoice discounting, you are afforded greater freedom when cash is hard to come by. This can be incredibly helpful in situations when you find yourself operating on a different funding cycle to a client.

The wider invoicing issue

Late or missed payments are a big issue for SMEs and cause a great number of problems for those managing them. It is estimated that, at the end of 2015, UK SMEs were owed £67 billion in unpaid invoices and wait an average of 72 days for invoices to be paid. This puts an incredible amount of pressure on small businesses, stretching their cash flow and preventing them from concentrating on growth and expansion. As one solution to this issue, invoice financing can be considered by any SME struggling to collect payments or trying to tackle cash flow problems.


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