If you are a small business in the UK and need to receive short-term loans to run your business, you should consider invoice financing.
Invoice financing refers to a method of short-term borrowing from invoice finance lenders to small businesses.
So basically, invoice financing allows a business to use its unpaid invoice as collateral.
The amount of money borrowed from the lender leverages against the invoices issued.
However, lenders do have limits on how much money they can borrow from SMEs. It does not mean you can take out a loan against all the funds owed to you from issued invoices.
However, it does mean that you can have more than one invoice lender.
Each lender has its lending policies, and some lenders may lend more money than others and may also charge better interest rates.
The Funding Bay is here to help you source out the best invoice lenders for your business for the best deals possible.
How do the invoice lenders make their money?
There are two ways.
A fixed-rate: Lenders charge a fixed rate for lending accessibility which will be an interest rate for the total amount of money loaned. For example, a lender may charge you a loan accessible fee of 1.5%, which is an annual lending interest rate for the owed money.
Pay per invoice: As the borrower, you will pay the lender a small percentage of the invoice amount issued as per the agreement between you and the lender.
What type of small businesses will benefit from invoice financing?
- Businesses who sell on credit
- Companies who sell the retailers and wholesalers
- Firms who would like to invest in projects that will expand their business
- Companies who go through times of cash flow uncertainty
- Companies that have high monthly overhead expenses and have to wait for payments
Here is how invoice financing can benefit your business:
Receive cash quickly. Invoice discounting allows the company to loan money against invoices that have been issued. The loan is a fast process that delivers a quick transfer, freeing up working capital to cover urgent expenses.
Keep your cash flow consistent. If you are a business that experiences cash flow shortages, discount invoicing can help you finance you through the tough times by keeping your cash flow consistently positive.
Keep it confidential. When you loan money from a lender and use your processed invoices as collateral, you do not need to inform your clients.
Invoice discounting is kept confidential between you and the lender, you are responsible for following up on unpaid invoices.
Invoice factoring is different as the terms give the lender to follow up with your clients regarding unpaid invoices.
Be protected against bad debts. You can lend money against invoices that are “non-recourse.” This stipulates that the lender accepts full responsibility for unpaid invoices.
Never be cash strapped. In case of any emergencies, discounting finance gives you the freedom of having money for any unexpected costs that may occur. You can have more than one invoice discount lender, increasing your lending limits. Find out from Funding Bay who diversifying your lender pool can benefit your business.
If you are a small business in the UK and would like to know about invoice financing, then please visit the Funding Bay website for more details.
Don’t forget to follow us on Facebook and Linkedin to receive our latest news, tips and crafty advice!
