Invoice finance is a flexible cashflow solution that helps businesses unlock money tied up in unpaid invoices.
Many business owners are familiar with the challenge of waiting weeks, and sometimes months, for customers to pay, which can be particularly difficult for small and growing businesses.
When businesses rely on invoice payments to purchase stock, pay suppliers, or cover wages, extended payment terms of 60 to 90 days can place real pressure on cashflow.
In this guide, we explain how invoice finance works for small businesses and when it can be most beneficial.
How Invoice Finance works
Invoice finance allows businesses to access a large proportion of the value of their invoices before their customers have paid, helping to improve cashflow and reduce reliance on overdrafts or short term borrowing.
Sometimes referred to as invoice factoring or invoice discounting, the process typically works as follows:
- You deliver goods or services to your customer as normal.
- You raise an invoice and submit it under your invoice finance facility.
- Up to 90 percent of the invoice value can be released within as little as 24 hours.
- Depending on the type of facility, either you or the finance provider manages the collection of payment from your customer.
- Once the invoice is settled, the remaining balance is released, minus any agreed fees.
As a broker, BFS works with a wide panel of UK invoice finance providers to source the most appropriate solution based on your business size, sector, turnover, and growth plans.
When Invoice Finance Helps Most
Invoice finance can benefit most businesses that trade with other businesses on credit terms, including sole traders, partnerships, and limited companies.
There are, however, certain situations where it can be especially valuable.
Seasonality
Does your business experience seasonal peaks? You may need additional cashflow to purchase stock ahead of a busy period or take on temporary staff to meet increased demand.
By unlocking cash tied up in unpaid invoices, invoice finance can help you manage seasonal fluctuations without the need to increase borrowing or apply for additional loans.
Growth
If your business is expanding, cashflow is often one of the biggest challenges.
Invoice finance can support business growth and scaling, management buy outs or management buy ins, the acquisition of new premises or equipment, hiring additional staff, and diversifying products or services.
Access to working capital that grows in line with your sales can allow your business to move forward with confidence.
Cashflow Pressure and Stability
One of the most important benefits of invoice finance is its ability to support business stability.
Unexpected costs such as HMRC liabilities, increased energy or supplier costs, or delayed customer payments can all place strain on cashflow. Invoice finance can provide valuable breathing space when your business needs it most.
How BFS can help
At BFS, we build long term relationships with our clients, acting as independent brokers to source competitive invoice finance solutions from across the market.
By taking the time to understand your business, we are able to match you with a facility that supports both your immediate requirements and your long term goals.
If you would like to explore how invoice finance could support your business, speak to the BFS team today for an initial, no obligation conversation.
