While invoice discounting is an excellent option for many businesses, it may not be right for you. It can be more expensive that other lending options and it often relies on your business being already successful and being able to prove that. But there are many alternatives to invoice discounting that we will show you in this article. Many of them are perfect if you are just starting out or your turnover is lower.
Invoice Finance
Invoice finance is an umbrella term for two main ways to fund your investment by leveraging your incoming invoices. These two ways are:
Invoice discounting: This is when you use your incoming invoices as a kind of security to get a loan from a lender. The lender has no involvement in your relationship with your customer and will charge you interest on the amount lent and a fee for each transaction. Sometimes there is also a monthly fee. It is a great option for short-term loans however your eligibility does depend on if your customers are credit-worthy and your company turnover. Not all businesses will qualify, but the best thing about invoice discounting is that your customers still deal with you rather than the lender. Keep reading to discover other ways you can raise funds for your business.
Invoice factoring: If you do not qualify for invoice discounting or it is not for you, you may find that invoice factoring is a better option. In this case, the lender takes over all aspects of your invoicing by looking after your debtor book and ensuring payment. They have effectively bought your sales ledger and given you up to 90% of the value in return. You can then draw down the value as you wish, giving you more flexibility and access to funds that you may otherwise need to wait for. You will need good credit for this type of lending, but the flexibility it affords means that there are plenty of lenders that are happy to lend based on various criteria. The best thing about this is that it can be a rolling contract that incorporates ongoing invoices and you can usually choose which invoices you would like to include in the ledger.
Business Loans
There are a huge variety of business loans available to all kinds of businesses. These include secured and unsecured loans, bridging loans, development finance, cash advance and credit facilities. Like all types of lending the terms for these loan types will depend on the credit score of the company and in some cases of you, as the owner. In some cases, the lender will work with you to ensure payment by being more involved that other loan types. These loans almost always operate on a repayment schedule and are paid off in a set period of time. The best way to find out if you qualify for one of these loans is to use a business loan calculator that takes into account your personal circumstances.
Asset Finance
If you are looking to finance the purchase of an asset or to leverage existing assets, one of the various types of asset finance might be exactly what you are looking for. While the details vary across the different products, the main feature of asset finance is that your lender will buy the asset for you and you pay them back in instalments. In some cases, you may be leasing the equipment and in others (hire purchase) you will pay it off by the end of the agreement. If you already have a number of high value assets in your business and want to raise cash for further investment, you may want to choose asset refinance which allows you to release the equity on your assets by transferring ownership to the lender for the duration of the agreement. This is perfect for more established businesses.
As you can see there are plenty of good options for finding the money you need to further invest in your business, or just to improve your overall cash flow. All require that you have a steady flow of income due into your business and that your turnover is looking healthy. But the flexibility of these options allows you to invest in ways that ensure the health of your business and your ability to pay back your loans.
Get in touch with us at Funding Bay for your invoice financing needs.Check out our invoice finance calculator here.
