Invoice finance is a form of short-term business finance.
The most important thing you need to know about it – and one of the reasons it’s so popular – is that it doesn’t involve borrowing.
That’s right – it’s a way of financing your business without taking on debt.
That’s actually a bit misleading though – because, unlike other forms of finance (like a loan or an equity injection) it won’t actually put more funds at your disposal. What invoice finance does is let you access the proceeds from your sales more quickly.
Let me explain.
When you sell to a customer on credit terms, you may have to wait 30, 60 or 90 days for them to pay your invoice. In the meantime, that invoice is an asset on your balance sheet – but it’s no use to you when it comes to paying your bills.
Invoice finance lets you cash in that asset and get your hands on the funds right away, by selling your unpaid invoice to a third party. That third party – your invoice finance / factoring company – will give you anywhere from 70 to 90 per cent of the invoice value up front.