How does invoice finance work?There are a number of different products included under the umbrella of invoice finance. Invoice discounting, invoice factoring, spot factoring and selective discounting are variations on a similar theme. All of these finance options are designed to release the cash tied up in unpaid invoices within as little as 24 hours of their issue. The process is simple:
- You set up an arrangement with an invoice finance provider
- Once an agreement is in place, you send copies of invoices issued to your customers to the invoice finance provider
- The provider pays you between 70 and 95 percent of the value of the invoice almost immediately
- When the customer pays the invoice 30, 60 or 90 days later, you receive the balance of the invoice minus the finance provider?s fee
What industry-specific problems can invoice finance solve?Businesses that issue invoices to creditworthy commercial customers can use invoice finance to help solve the particular cash flow issues they face. These are some of the industries that commonly use invoice finance?
ConstructionLong payment terms are nothing new in the construction industry. The collapse of Carillion shed light on the 120-day payment terms that are common in the industry, with some subcontractors having to wait more than 200 days to be paid by major contractors. Invoice finance frees up cash so construction firms can bid on new work, buy materials and hire employees.
Trucking and logistics?There are a number of costs transport firms must meet before a job can be completed. Drivers must be paid, vehicles have to be maintained and fuel has to be bought. Invoice finance helps to keep cash flowing so businesses can operate effectively and make future plans.
Recruitment agenciesThere are often significant delays between recruitment agencies paying temporary staff and payments from clients for those staff being received. Invoice finance ensures temporary workers can be paid on time.
Professional services?Architects, engineers and legal firms often use invoice finance to save time that would otherwise be spent collecting payments. It also removes the need to chase late payments which can be damaging to client relationships.
Is invoice finance right for you?If you run a small or medium-sized business that suffers from potentially damaging cash flow fluctuations then invoice finance could provide the stability you need. Once considered to be a finance option of last resort, now invoice finance lending to businesses has reached record levels. This has prompted many more finance providers to enter the market, leading to a much more competitive range of deals. Tony Smith is a director at Business Expert
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