Have you ever considered how much better your cash flow would be if everyone paid what they owed you? One option that is often overlooked is Invoice Financing.
Invoice Finance is ideal for businesses with a quality debtor book looking for a way to finance growth.
It is ideal for businesses with a quality debtor book looking for a way to finance growth.
(Providing they meet the criteria; some Lenders will also Finance relatively new businesses).
Invoice Finance for Small Business – How it Works
Invoice Finance for small business is a simple and practical way to unlock the value of your debtor book to fund operations and growth.
Whilst Lender policies and how much they will advance against your debtor book varies; it works as follows:
- You issue an invoice to a client
- The Lender advances a percentage of the invoice (For example 80%)
- When the customer pays, you gain access to the remaining value
The amount of cash you can access can grow in direct proportion to the size of your debtor book.
Invoice Finance for Small Business Benefits
Using Invoice Finance brings forward you cashflow. For example, if you provide customers terms of 60 days – you can’t use that cash until payment is received.
The position is exacerbated if you are a growing business that requires cash to fund growth.
Some of the benefits of Invoice Financing include:
- The application process is less onerous than many other types of business finance
- Approval is normally forthcoming within 48 hours
- Cash can typically be accessed within 24 hours of an invoice being raised
- Unlike more traditional forms of finance, real estate security is not required (The Loan is secured by your debtor book and directors guarantees)
- You only pay interest on what you use
- The facility can increase as your business and debtor book grows
- Different to Factoring – customers are not aware you are using Invoice Financing
What does it cost?
While rates & fees vary between Lenders and will depend on the quality of your debtor book, the cost is similar to an unsecured overdraft:
- You pay interest only on the amount drawn (invoices discounted).
- Interest calculated daily and charged monthly
- A monthly account/management fee will be charged
- Most Lenders also require debtor insurance
What information do I need to provide?
This will vary depending on the Lender, however, the information required is far less onerous than for a traditional bank loan.
Typically, it will include:
- An aged Debtor Listing (Some Lenders may only require a debtor summary)
- An aged Creditor Listing (Some Lenders may only require a summary)
- Financials (Profit & Loss, Tax Returns) for the past two years
- Year to Date Profit & Loss + Balance Sheet
- ATO Portal
- Copies of Quotes, Purchase Orders, Tax Invoices, Proof of Delivery, Remittance Advice for top debtors
- A copy of supply agreements/contracts for major debtors if applicable
Who Provides Invoice Financing for Small Business?
Invoice Financing for small business is available from some of the major Banks and Lenders that specialise in invoice financing.
Summary
Invoice Financing for small business is a flexible form of finance that can help business owners better manage cash flow and growth.
The application and approval process is less onerous than many other types of business finance.
In addition to profitability, to qualify you need a quality debtor book and robust internal debtor recording and collection processes.
If you want to learn more about Invoice Financing don’t hesitate to reach out.
