Over a third of UK SMEs have limited or no understanding of how invoice finance works, despite over a quarter considering cash flow as their main business concern*.
If you want more information, here’s a guide to how it can work for businesses, from the differences are between invoice discounting, invoice factoring and asset based lending to how payment works with Close Brothers’ IDeal™ software.
What is invoice finance?
Invoice finance releases capital from unpaid invoices. This works by lending money based on the balance of debt owed to a company. Once the payment has been settled by the customer, you’ll get the remainder of the balance less a small fee.
Unlike a traditional overdraft or loan, this type of funding grows in line with the business turnover and works as a flexible solution to regulate your cash flow.
The liquidity released can be used to provide a vital cash flow injection, as well as enabling more strategic initiatives, such as purchasing new stock, acquiring another company or funding an MBO.
Which type of finance is right for my business?
There are three types of invoice finance available; invoice discounting, invoice factoring and asset based lending.
Invoice discounting unlocks up to 90% of the value of unpaid invoices. You then liaise with the customer to arrange payment and receive the rest of the balance when the invoice is settled.
Case study: Find out how a specialist manufacturing firm enhanced their cash flow with invoice discounting.
Invoice factoring works similarly to invoice discounting. The only difference is that Close Brothers collect the payment from customers on your behalf freeing up valuable time.
Case study: Watch how invoice factoring helped a recruitment company grow their business.
Asset based lending
Asset based lending (ABL) is becoming increasingly popular among larger businesses. ABL combines invoice finance with additional working capital released against other company assets such as property, stock, plant and machinery.
Case study: See how asset based lending allowed an investment firm to secure a business acquisition.
How does payment work?
Thanks to our award-winning software IDeal™, payment is instant the moment your invoice is raised. This immediacy of funding allows you to respond quickly to the needs of your business and keep your cash flow predictable. IDeal™ works anywhere in the world, can be accessed 24/7 and integrates with the vast majority of accounting systems.
How much can I borrow?
If you want to know how much cash could be unlocked from outstanding invoices and company assets then try the invoice finance calculator! Alternatively, you can speak with one of our specialist advisors who can give you a personalised quote.
*These statistics have been updated and are correct as of August 2020.