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The Different Types Of Invoice Finance
This type of business borrowing can be broken down into a number of different products, they are:
Click on each product to find out more about them, including the differences, advantages and disadvantages of each.
Is Invoice Finance Right For My Business?
It can be a great tool for releasing additional capital for your business. Each business is managed differently and there are a number of factors to consider before deciding to take out invoice finance.
Who Should Take Out Invoice Finance?
There are several industries that tend to benefit greatly and the most common are:
- Security firms
Of course, any company supplying on payment terms of 30 days or more can benefit, regardless of industry.
Choosing The Right Invoice Finance Product
If the need for additional working capital is likely to be long-term and you are paid in terms of 30 days or more, you should consider invoice discounting or invoice factoring. The key difference is around credit control.
Although the idea of giving up credit control to the lender might seem appealing, it isn’t always simple. Where you have a strong relationship with your customers, you may find that they contact you anyway, rather than responding to your invoice finance provider.
Where funding is short-term, selective invoice discounting is the better product for you. Before proceeding, it is worth comparing the cost against other forms of business finance, such as business revolving credit facilities and business loans.
Cash Flow vs. Profit
Although this method of borrowing will help your cash flow position, there is a cost for the service. This means there is a trade-off to consider – working capital versus profit. Careful consideration should be given to both the benefits and drawbacks.
If your business is highly profitable, but cash flow is a struggle due to long invoicing terms, then there is a good chance that invoice finance is for you. Boosting the cash flow of a business can produce significant benefits, as long as you’re not eating up all the profit to achieve it.
Invoice Finance Providers
There are a number of different lenders who are active in the market. Each lender has their own process and criteria with their own areas of expertise.
We work hard on your behalf to find the best providers for your circumstances – and we don’t charge a broker fee for our service. We try to cover all the leading lenders in our invoice finance comparison, to give you the broadest range of options possible.
Although people have historically used their own bank to provide funding, a number of new lenders have entered the market. This has improved the choice for borrowers. Here we break down the different types of lenders, and how they tend to work.
High Street Banks
High street banks have historically been the go-to resource. As with other forms of finance, the offering from high street banks is usually aimed at the prime end of the market.
The rates offered will usually be low, as will the costs of borrowing. The price to pay for this is that the bank will usually want to see a long and successful trading history, with plenty of security and a strong balance sheet.
The products offered by high street banks will often be the cheapest. However, the application process is often more difficult than other lenders. If you or your business have a poor credit history, a lack of trading history or few assets, you may find high street funding difficult to secure.
There are a number of specialist lenders in the market, including challenger banks and lenders who offer only invoice finance and other forms of asset-based lending. Generally, these lenders will work in a similar way to high street banks but will be more flexible in their criteria. This gives you a much better chance of success in your application and also makes the process much quicker.
Peer-To-Peer (P2P) Platforms
Peer-to-peer lending is becoming increasingly common and is proving popular in the selective invoice discounting space too. There are a number of P2P funded lenders operating in this area, and they can offer excellent terms in the right situation, while also acting quickly.
Bad Debt Protection & Other Add-Ons
Our providers are able to offer full bad debt protection. This is designed to protect you from losses in the event of your customer becoming insolvent and failing to make payment.
There are several add-ons available to help protect your business, each of which has a cost. Our experts talk you through all of your options and the costs associated with each. We can help make the process simple and easy to understand.