Progress

Finance
May 24, 2023
3 mins

Is Invoice Finance the Right Funding Tool for Your Start-up?

Key take away points:

  • How invoice finance can help to fund start-ups by unlocking cash in unpaid invoices
  • Key features and benefits to consider
  • How to set up your invoice finance facility

Running a Start Up Business

Starting a new business is a simultaneously exciting and terrifying prospect all at once, and one of the most common sources of stress is funding. There are very few businesses that do not require at least some working capital to get off the ground, and even fewer that will survive without establishing a healthy cashflow as soon as possible.

The reality is, however, that bank loans for start-ups can be almost impossible to come by as they have no credit or trading history and minimal collateral to offer the lender. And for those lucky enough to be accepted for a loan, they are starting off their business’ journey with a debt on their balance sheet.

There is, however, another way.

Instead of having to wait weeks or months for customers to pay their invoices, an invoice finance facility enables businesses to treat their unpaid invoices as assets and access up to 90% of their value straight away.

Invoice Finance for Start-ups and New Businesses

Invoice finance can be a great funding tool for startups and new businesses as it enables them to access much-needed capital for growth without incurring debt. It can even be used to unlock the value of invoices for businesses with contracts or projects not due to be completed until a later date.

A big reason for this is that unlike many other forms of commercial finance (e.g., asset finance or loans), invoice finance providers are not assessing a business’ creditworthiness or trading history – they are more interested in your customers, i.e., how likely is it that your customers will settle their invoices.

Once set up, an invoice finance facility provides businesses with a healthy cashflow that can be used to cover the costs involved in setting up, ongoing operational costs, investments, and growth.

Benefits of Invoice Finance for Start-ups

Speedy access to funds

Many other types of commercial finance can be complicated and time-consuming to access, especially if you are dealing with a bank. In some cases, it could be weeks or months to get hold of cash that you can’t move forward without. Once an invoice finance facility is established – which should only take a few days – you will be able to access the cash from new invoices in a matter of hours.

A scalable solution

Your invoice finance facility can grow alongside your business meaning you can take on new customers and bigger contracts without worrying about having to find more funding.

Build your business’ credit

It is important to build your credit in the early days of trading but having no credit or trading history can make this difficult. An invoice finance facility is based on the creditworthiness of your debtors so you can use it from day one, and as it helps you settle your debts, it can also help you build up a healthier credit rating.

Accelerate growth

Often a new business is working on a very tight budget which can mean that they have to prioritise funding essential operating costs over other areas that might bring growth like marketing, product development, or recruitment. Invoice finance can give you access to the cash you need to make this growth happen sooner rather than later.

Tailored solution

Every business is unique so as you might imagine, so invoice finance is not a one-size-fits-all facility. There are lots of providers out there willing to work with you to find a process that suits your needs.

What can invoice finance help your business to achieve?

The improved cashflow that invoice discounting can bring enables many business owners to achieve more than they thought possible. Releasing capital is not only a good idea from a financial stability point of view, improving your liquidity in general, but it can also help to accelerate growth in several ways.

Here are just a few examples.

  • Recruiting experienced and talented staff.
  • Ordering supplies/stock.
  • Accessing early payment discounts from suppliers.
  • Paying HMRC bills in full and on time, avoiding penalties.
  • Acting on opportunities for growth in the marketplace without delay.
  • Investing in equipment, vehicles, renewable technology or improving facilities that boost your operation or streamline efficiency.
  • Acquisitions or management buyouts.

How does invoice finance work?

  1. You would carry out your services or deliver your goods as usual.
  2. In addition to sending your invoice to customer, you would also send it to your invoice finance provider.
  3. The invoice finance provider will advance you up to 90% of the value of the invoice, typically just a few hours after receiving it.
  4. When your customer has paid their invoice, you will receive the remaining balance of the invoice, minus a pre-agreed fee for the provider’s service.

What’s the difference between invoice discounting and invoice financing?

You will probably come across the terms ‘invoice factoring’ and ‘invoice discounting’. Both are types of invoice finance that unlock cash tied up in unpaid invoices, but there are differences between the two options.

Control of sales ledger

With an invoice factoring service, the provider will manager your sales ledger and collect payment from your customers on your behalf. However, with invoice discounting, you maintain control of your sales ledger and payment collection.

Confidentiality

If you use an invoice factoring service, the provider will be managing your sales ledger and so your customers will be aware that your invoices are being factored. With invoice discounting, your customers do not need to know you using the service.

Price

Generally, the fees involved in invoice factoring are expensive than invoice discounting as with a factoring facility you are paying for an outsourced collections department, whereas with invoice discounting you keep this inhouse.

Retaining control of your customer relationships in the early stages of setting up a business is crucial, as is the need to keep outgoing costs as low as possible, so it makes sense that invoice discounting is a popular choice for younger businesses where more established organisations may choose to outsource the process via invoice factoring.

Need to unlock working capital for your start-up?

At Bluestone we work with one of the largest funding panels in the UK, many of which offer fantastic invoice finance facilities for new businesses.

If you are interested in accelerating your growth with an invoice finance facility, get in touch with us today. If it’s the right choice for your business, we can arrange an invoice finance facility with one of our industry leading partners ASAP. 

Contact us today to discuss an invoice finance facility for your business.

BS.202309.01BL20

Got a question about this article? Complete the form below to send us an enquiry and a member of our team will get back to you asap!

Thank you! Your submission has been received!
A member of our team will contact you asap!
Oops! Something went wrong while submitting the form.

By filling out this form, you agree to the terms laid out in our privacy policy

Subscribe

Get the latest in finance news delivered to your inbox.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

By filling out this form, you agree to the terms laid out in our privacy policy.

Our team are always here to help...

We know finance can be complex and often it's easier to talk things through. Drop us a message or give us a call 0330 135 8660 and we'll get back to you ASAP.

Get in touch
Explore how fast, affordable finance can help your organisation grow.
Finance for your organisation
Maximise your sales potential by offering your customers an alternative to paying with cash.
Finance for your customers
Top ↑