What is Invoice Finance and how Can you Use it?

There’s no doubt about it; entrepreneurs in the UK are struggling to fund their burgeoning business ventures as the economic climate continues to worsen.

According to the merchant bank Close Brothers, for example, just four out of 10 SMEs have been able to secure funding from their chosen lender, while a further 34% claimed that the amount of capital available to them was not fit for purpose.

There’s an opportunity for businesses to negate this issue through invoice financing, however, which has created an accessible source of funding that delivers a number of competitive advantages. But what exactly is invoice financing, and how can you use it to your advantage?

What is Invoice Financing?

In simple terms, invoice financing is a process through which companies effectively sell their accounts receivable to a third-party investor.

So, once your fledgling startup has completed work on the behalf of a client, the value of the subsequent invoice is immediately paid by an investor. This negates the impact of 30, 60 and 90-day repayment terms, while alleviating the cash-flow issues experienced by many businesses when they first begin to trade.

Once the client in question settles their invoice in accordance with its precise terms, this sum of cash is used to repay the investor and settle your debt. As a result, you can avoid having to commit to a long-term and unsustainable cycle of debt, while invoice financing also lets you retain the equity that exists within your business.

How to Utilise Invoice Financing

 Unlike many sources of credit, invoice financing is an extremely simple proposition that has one clear purpose. More specifically, it has been designed to help fledgling businesses optimize their real-time cash-flows, enabling them to trade seamlessly as they build their client base and meet their initial overheads.

We’ve already touched on the process and purpose of invoice financing, of course, but you may also want to consider using a service like Touch Financial to ensure that you secure the most competitive deal.

This type of brokerage service will use your precise circumstances to identify the best potential deals, comparing the length and breadth of the market in a completely objective manner. This will enable you to save time without compromising on the terms of your chosen deal, while it should also help when identifying any real-time offers or promotions.

Services of this type can even help to identify invoice financiers that operate in specific industries, which may in turn lead to better and more relevant terms.