Having large amounts of cash tied up with your debtors can significantly hinder your business growth. Invoice factoring is a great solution for unlocking the cash tied up in your unpaid invoices. Typically, around 95% of the cash can be released to you instantly, in some cases even 100% of the funds are made available.

There are two main types of invoice finance- invoice factoring and invoice discounting. Invoice factoring is sometimes referred to as ‘factoring’, or ‘debt factoring’. It enables you to sell unpaid invoices (accounts receivable) to a third-party factoring company (a factor).

The factoring company buys the invoices for a percentage of their total value and then takes responsibility for collecting the invoice payments.

As an alternative to bank loans, overdrafts, or credit cards, it can bridge the gap between raising customer invoices and getting paid. At the same time, it can free up your time because the funder manages your invoicing and collection processes for you.

Invoice factoring is designed to provide working capital for those businesses who tend to experience longer payment terms with invoices. Factoring is a great product if you spend a lot of time dealing with the invoice process. This time would be more effective running and growing your business and factoring gives you that freedom as the lender takes care of collecting accounts receivable, while you are accessing the advanced cash and focusing on your business.

There are plenty of reasons but the main one is usually cashflow. It provides a significant boost and gives consistency to your business income. Cash can be raised almost as soon as services or goods are delivered.

This can make a huge difference to any company – it can sometimes be the difference between a business just surviving to one that is thriving. It makes everything from payroll to business growth much easier, both of which can be major concerns for SMEs. There are other options to invoice finance, including loans, overdrafts and peer-to-peer lending, but few offer the same level of flexibility that invoice factoring does.

This type of funding facility provides both a funding and business solution. It is also funding that grows in line with the business turnover.

Your company should use invoice factoring when you have a lot of invoices outstanding and your cashflow is suffering because of it.

For example, if you have 30 day payment terms some of your customers will pay on time and within the 30 days but others may require chasing or some may go way over the limit and require more persistent effort on your part. That 30-day chunk of revenue might represent the bulk of your potential cashflow, but you can’t actually use it. Invoice factoring allows you to release that cash almost immediately, or at least a large part of it.

These vital funds could be used to help you meet operating costs more effectively or even help grow, it is great for helping to:

• Pay staff and suppliers
• Bridging short-term expenses
• Repaying a loan
• Taking advantage of seasonal business opportunities

Factoring is the ideal solution if you are looking to save time chasing payments whilst freeing up cash.

• It releases up to 100% of the value of your unpaid invoices the moment you issue them to your customers – improving your cashflow
• You will have the full support of the lender to help manage your credit control and chase payments, collecting them on your behalf letting you focus on the running of your business  
• It is flexible- your funding line increases at the same rate as your turnover meaning that you do not need to renegotiate terms
• Saves you time and eases the pressure through relieving you of the burden of credit control 
• Gives you bargaining power – invoice factoring can help you to negotiate better terms with your suppliers
• Faster growth – grow your business at a much faster rate due to the flexible funding line
• It gives quick access to working capital
• Eliminate risk from customer insolvency with bad debt protection

Invoice factoring means selling control of your accounts receivable, either in part or in full.

1. You provide goods or services to your customers in the normal way
2. You invoice your customers for those goods or services
3. You ‘sell’ the raised invoices to a factoring company. The factoring company pays you the bulk of the invoiced amount immediately
4. Your customers pay the factoring company directly. The factoring company chases invoice payment if necessary
5. The factoring company pays you the remaining invoice amount – minus their fee – once they have been paid in full

Invoice Factoring is an increasingly popular form of alternative business funding. This type of alternative finance has grown in popularity since it has become more challenging for businesses with imperfect credit to use traditional finance products from high street banks.