Invoice Finance For SMEs
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Author: Gary Hemming CeMAP CeRGI CSP
20+ years experience in invoice finance
What is invoice finance for SMEs in the UK?
Invoice finance for SMEs in the UK is a financial product that enables businesses to release the cash tied up in their unpaid invoices.
As a form of commercial finance, invoice finance acts as a form of long term revolving credit designed to support business cashflow over a prolonged period.
How does it work?
It works as follows:
- Invoice your customer – You invoice your customer as you usually would and provide a copy to your funder.
- Funds released – Receive up to 95% of the amount invoiced within 24 hours of the invoice being issued.
- Payment chased – Depending on the type of finance chosen, either your company or the lender chase payment.
- Invoice paid – Once the invoice is settled, you receive the balance due to you, minus the agreed finance charges.
Are there different types to consider?
Yes, there are 3 types of invoice financing to consider. They are:
Selective invoice finance – Selective invoice finance enables you to fund either a single invoice or as many as you choose, flexibly and without contract.
Invoice factoring – Invoice factoring provides an upfront payment against your invoices as they’re raised and passes credit control to your lender, known as your factor.
Invoice discounting – Invoice discounting acts much like invoice factoring, but leaves responsibility for credit control with your business, meaning your customer will be unaware and unaffected by the facility.
Read more – Invoice Finance: How Does It Work in the UK?
What are the pros and cons of SME invoice financing?
The main pros are:
- Improved cashflow – Financing your accounts receivables speeds up your cashflow cycle and has a dramatically positive impact on your bank balance.
- It’s fast and easy – It’s a quick and easy way to borrow money, and once set up, sees funds released to you within 24 hours each time you raise a new invoice.
- No need for collateral – Your invoices act as security for the finance, meaning no collateral over property is required.
The key cons are:
- Cost – While the cost of invoice finance isn’t high compared to some other commercial finance products, there is still a cost to consider, and that will impact your margins.
- Loss of control – While passing on your credit control (when taking on a factoring facility) takes a job off your hands, it does ultimately mean that you’ll lose control of your sales ledger.
Will I be eligible?
If your SME operates on delayed payment terms of 30 days to 90 days, and your customers are predominantly other businesses, there is a strong chance that you’ll qualify.
Invoice financing is underwritten based on the strength of your customers and how your invoices are raised, so if these elements are strong, you’re in with a great chance.
We can even offer finance to companies with a poor credit history or very little credit history.
What is the best way to secure invoice finance as an SME in the UK?
The best way to secure invoice finance as an SME in the UK is through the ABC Finance invoice financing comparison tool.
Our online platform creates a ‘rapid tender’ process where lenders compete to win your business.
You simply input your business details and requirements into the platform, and within minutes, the market’s leading lenders start competing to secure your business.
Each lender submits their best offer, leaving you free to sit back and choose the best one for you.
There’s no need for endless sales calls or negotiations, as our comparison tool puts the power in your hands and forces lenders to offer their best terms to capture your attention.
We also have a team of experts on hand to help you choose the right option for your business, taking into account service levels and sector expertise.
Once you’re happy with an offer, you can progress your application in a single click.
