Invoice finance is when the lender uses an unpaid invoice as security for funding, giving you quick access to a percentage of that invoice’s value quickly, sometimes within 24 hours. The amount of money a provider will lend you is based on its own risk criteria. But this method of funding lets you access finance for cashflow or investment purposes, using an often-untapped asset on your balance sheet. There are two main types of invoice finance:

 

Factoring

This allows businesses to generate money against unpaid invoices. The finance provider will lend you up to 90% of the value of your invoices. It will also manage your sales ledger and collect payment for your invoices direct from your customers. It will then deduct the costs of the factoring service, before paying you the remaining balance.

 

Invoice discounting

This works in a similar way to factoring, but your business keeps control of customer payments. You pay a fee and a discount charge (like interest) if you use the funding, much like a standard overdraft.