The business world is fraught with a variety of challenges, as any business owner would attest. These challenges may come in the form of increased competition, a lack of business exposure, a high cost of raw materials, and the like. But with the right know-how and the right support, your business need not face too many difficulties.

Whilst you may think that if you supply a good product and a good service, you already have a good chance of success – sometimes, it takes more than this. One particular challenge for businesses nowadays is where to get the cash they need in order to advance – sometimes, in order to run their daily operations without any hassle as well.

Fortunately, for your financing needs, there are a number of solutions that are available to you. One special service that can give you great rewards is invoice financing.

Invoice financing and how it works

Simply put, invoice financing is when a third party (an invoice financing firm or financier) purchases your unpaid invoices for a certain fee. There are many invoice financiers in the UK alone, most of which offer two types of invoice financing services: factoring and invoice discounting. Keep in mind that there may be subcategories of factoring and invoice discounting, but the following is what you can normally expect from such services.

Factoring explained

Factoring, also referred to as debt factoring, is a service wherein an invoice manager is in charge of the management of your ledger for sales as well as collecting the money your customers owe you. There are sub-categories of factoring, such as fixed fee factoring and confidential factoring, where your customers are not aware of the third-party’s involvement. To use factoring for your business it goes like this: your company raises an invoice, and the invoice financing firm will purchase the debt of your customer. The firm then gives you a percentage of the available cost, ranging from 85 to 90%. After giving you the cash you need, the firm will be in charge of collecting the full payment of your invoices from your customer, and when they receive the payment, they will then give you back the remaining balance whilst also subtracting their fee.

Invoice discounting explained

Invoice discounting, on the other hand, is a service wherein the invoice financing firm will usually not be responsible for managing your sales ledger or collecting debts for you. You have full control over your credit control and your sales ledger. Rather, they will simply lend you the money based on your unpaid invoice/s, which is normally a percentage of their complete value. The financing firm will just charge you a certain fee. What is important to remember is that when your customers settle their accounts, their payment goes to the financing firm. This arrangement then reduces the payment you owe the firm, allowing you to borrow more cash on the invoices for newer sales. But again, there are subcategories for this: you can also arrange for invoice discounting which is confidential or disclosed, and so on.

How invoice financing can help your business grow

If you are having difficulties with your business cash flow, then invoice financing from a reliable invoicing firm like may well be the solution to your problems. The cash you receive gives your enterprise a much-needed boost, especially when it comes to specific goals and objectives you have in mind with regards to expanding your services or producing more goods.

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