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Invoice finance explained

What is Invoice Finance?

Invoice finance can ease cash flow problems by enabling you to get paid faster for completed work, meaning you can carry on growing without being held back by your finances. Rather than waiting days or weeks for your invoices to be paid by customers, an invoice finance facility means that lenders will advance you most of the value of the invoice immediately.

Invoice finance allows you to access cash based on the value of your unpaid invoices. Your business is provided with an advance on the amount of money they are owed but have not yet received. This can be a helpful way for businesses to improve their cash flow and have access to the working capital they need to grow and succeed.

Pros and cons of invoice finance

Why use invoice finance?

  • Invoice finance provides quicker access to cash as it will be available from the lender as soon as the invoice is raised. This cash can be used to grow your organisation, invest in stock, or cover operational costs.
  • Invoice finance provides a quicker turnaround than other forms of finance such as loans. 
  • Invoice finance is an unsecured finance product so your assets will not be at risk. 
  • Invoice discounting can help convert credit sales into cash enabling quicker growth and development in a shorter amount of time.
  • Invoice finance can provide greater financial flexibility as the amount of funding you receive is directly linked to the value of unpaid invoices, meaning that as sales grow, so does the amount of funding you can access.
Considerations
  • Invoice financing is only available on commercial invoices meaning your customers have to be other businesses, not the general public.
  • If you choose to apply for invoice factoring, then chasing payments will be out of control to an extent.
  • Whilst invoice financing can be a great short-term solution for cash flow, there may be processing fees and interest to pay which can add up over time.
Invoice finance in a conference room - A view through a glass wall into a modern office conference room, representing the context of invoice finance.
Invoice finance calculations - A focused man using a calculator to calculate margins, reflecting the numerical side of invoice finance.
Example of invoice finance in action

How invoice finance works

Organisation X sells £10,000 worth of goods and issues an invoice with 30-day payment terms. When working with an invoice finance provider, the organisation can receive an immediate advance of up to 85% of the invoice value, which in this case would be £8,500.

This money can be used to invest in new equipment, hire staff, or pursue new business opportunities.

When the customer pays the invoice after 30 days, the invoice finance provider will release the remaining 15% (£1,500 in this case) to Organisation X, minus a services charge and/or other related fees.

The fees charged by the invoice finance provider are dependent on factors such as the creditworthiness of the business and its customers, the volume of invoices being financed, and the specific terms of the invoice finance agreement.

Invoice finance explained

Which type of invoice finance is right for you?

Invoice factoring

The lender takes over the management of the your sales ledger and collects payments directly from customers. You receive an advance on the value of their unpaid invoices, typically around 80-90%, and the factoring company takes a percentage as a fee.

Invoice discounting

You retain control of your sales ledger and collects payments from customers themselves, but the lender provides funding based on the value of the outstanding invoices. You typically receive an advance of around 80-95% of the invoice value, and the discounting company takes a percentage as a fee.

Invoice factoring may be more suitable for organisations with less established credit profiles such as new start businesses, as the lender takes on the credit risk, whereas invoice discounting may be more suitable for larger, more established organisations with in-house credit control teams.


Invoice finance communication - A man engaged in a phone conversation within an office breakout room, highlighting the communication side of arranging invoice finance.

What to do next...

Setting up invoice finance

If you're considering invoice finance for your organisation, the next step is to reach out to our team of experts at Bluestone.

We understand that navigating commercial finance can be a daunting process, especially if you're unfamiliar with the requirements and criteria.

Our team of finance experts have years of experience helping organisations like yours secure the funding they need. We'll work closely with you to understand your specific requirements and recommend options tailored to your business needs.

Contact us today for a no-obligation conversation about your financial requirements.

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Invoice Finance

Frequently Asked Questions

Can you explain how invoice finance works and what it involves?

Invoice finance is a type of financing that allows organisations to receive an advance payment on outstanding invoices. This type of financing is often used by organisations that are waiting for payment from customers, and it helps to improve their cash flow and reduce the wait time for payment. Invoice finance typically involves the organisation selling its outstanding invoices to a finance provider in exchange for an advance payment, which is typically a percentage of the invoice value. The finance provider then collects payment from the customer and the organisation repays the loan, plus fees and interest, when the customer pays the invoice.

BS.202311.01FAQ22

How do you determine the amount of financing that I may be eligible for through invoice finance?

The amount of financing that you may be eligible for through invoice finance will depend on the value of your outstanding invoices and the financial performance of your business. We will work with you to evaluate your financial situation and determine the amount of financing that you may be eligible for.

BS.202311.01FAQ39

Are there any fees or charges associated with invoice finance?

Yes, there may be fees and charges associated with invoice finance, including application fees, origination fees, and interest charges. The exact fees and charges will depend on the provider and the specific terms of the loan. We will work with you to provide an estimate of these costs and find the best invoice finance solution for your needs.

BS.202311.01FAQ7

What are the repayment terms and conditions for invoice finance, and how does this impact my cash flow?

The repayment terms and conditions for invoice finance will depend on the finance provider and the specific terms of the loan. Typically, invoice finance is repaid when the customer pays the invoice, and the finance provider takes a percentage of the payment as repayment for the loan. The exact repayment terms and conditions will impact your cash flow, and we will work with you to find the best invoice finance solution to meet your specific needs and maintain positive cash flow.

BS.202311.01FAQ59

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