A Quick Invoice Financing Overview for New Businesses

Invoice financing, sometimes also recalled as ‘accounts receivable financing’, is a method to improve cash flow amid challenging credit situations, by selling invoices. 

This type of finance uses invoices as a way for businesses to unlock cash tied up in invoices and therefore speeding up cash flow. This is done by selling invoices to a third party who will advance some of the funds the invoice is worth upfront, for a cut of the invoice.

There are two ways to finance invoices. The first way is through a sale. Invoices can be sold to a factoring company in exchange for immediate payment. The second way is using receivables to secure a revolving line of credit through an asset-based loan.

What is Invoice Discounting and Invoice Factoring

Both forms are the most common when it comes to invoice financing.  They are financial services that allow businesses to release funds tied up in unpaid receivables and can be cheaper than bank loans or overdrafts. Although both solutions provide similar results, both methods of financing are very different. Choosing between each method depends on the nature and size of your business, and your particular needs.

Factoring

Typically invoice factoring works better for smaller businesses wanting to bridge the cash flow dips without the wait and hassle of collecting outstanding invoice payments. 
A factoring facility finances and tracks individual invoices even if the whole ledger is financed.  Often, the financier helps a client with credit and collection activities as well.  This assistance makes factoring a better choice for smaller companies, allowing you greater flexibility to concentrate on your core business at the strategic level.

Invoice discounting

Invoice discounting provides the same benefit as mentioned in factoring, the difference here is that the invoice seller (borrower) chases the debt themselves.

Invoice discounting is more suited for larger businesses where greater resources, whether human or information, exist, or if you want your company to deal with debt collection.  Companies that are more established and have a larger turnover usually seek invoice discounting for its funding-only solutions.

Get Pro-Level Advice from Financing Experts

Only the right piece of advice pertaining to invoice financing can get your business out of trouble and help to alleviate your cash flow dilemmas.  In order to push forward and achieve business longevity and positive financial health, you need to acquire the best invoice financing package that best suits your business needs.


>> Is your business in need of fast, short-term financing? Do you need to access cash faster than your customers pay you?

Populous World is an Invoice Finance provider that unlocks working capital for UK businesses.

Bridging your business’s cash flow gap is something that Populous World excels in delivering, providing you with the funding tools to grow and sustain your business.

For more information, visit us or contact a member of our funding team: [email protected]


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