How does invoice financing work?

There are two broad types of invoice financing in the UK — factoring and invoice discounting. Factoring usually involves an invoice financier managing a company’s sales ledger and collecting money owed by customers themselves, whereas discounting means the invoice financier won’t manage the company’s sales ledger or collect debts on the company’s behalf. Instead, the financier lends the company money against unpaid invoices.

Simply put, invoice financing is not a loan as typically perceived, rather it is about selling invoices and unlocking cash instantly. The process entails funding solutions that advance against your outstanding customer invoices.

At Populous World, selling invoices on our invoice finance platform allows businesses to sell individual invoices in order to free up cash, to a global pool of investors. The technology based platform takes the formula of peer-to-peer lending and applies it to invoice finance.

So, if your business’s cash flow position is consistently low, then the flexibility provided by invoice financing is very attractive.

For example, if your company can foresee that it is likely to suffer from a cash shortfall in the future, you may consider applying for funding that can effectively inject immediate capital into your account. Being financially secure for any business is always a great place to be, it means you can focus more on business growth, meeting objectives and long-term plans rather than having to micro-manage time consuming and stressful tasks. Worrying about not being able to meet payment deadlines is enough for any business owner to lose sleep.

Invoice financing is an enticing tool for any small to medium sized business as it gives you the ability to provide your business with sufficient cash in advance. It becomes payment readily available for vital necessities that fuel your business to run, for example; expenses such stock or raw materials, employees, rent and other operating expenses.

Naturally, positive cash flow is preferred and means your business is running at a pace that looks favourable to creditors and lending companies. High positive cash flow is even better and will enable you to invest time and money into new ideas or expand on existing projects.