What is Invoice Finance

March 5, 2024
Jamie Davies

Invoice finance helps businesses to improve their cashflow by releasing money that’s tied up in invoices for goods or services sold on credit terms.

In simple terms, it works like this: 

  • You raise an invoice on your customer, giving 30 days credit.
  • Your invoice finance provider immediately pays you around 90% of the invoice value.
  • After 30 days, your customer pays their invoice in full.
  • The invoice finance provider pays you the balance, minus their fees and interest.

The benefit to you is that you don’t have to wait for the customer to pay before enjoying the benefit of the cash. This provides valuable working capital you can use to pay your staff or suppliers, without having to wait for the 30 days.

Different forms of invoice finance

There are different types of invoice finance, and different names by which it is known. These include invoice factoring, invoice discounting, debt factoring, accounts receivable factoring, selective invoice discounting and spot factoring.

The principle behind each of these options and names is the same. As a result, you get paid faster and have more working capital available.

Issues to consider with invoice finance

When considering invoice finance, you should pay attention to:

  • How quickly the finance provider will pay your invoices.
  • What  percentage of the invoice value they will advance.
  • Fees and interest charged.
  • The term of the finance arrangement.
  • How much of your sales ledger should be processed with invoice finance.
  • How the credit control process works and what this might mean for relationships with customers.

Some invoice finance providers will want to manage your credit control process. This puts experienced credit controllers to work on your behalf. While the credit control process is usually managed with discretion, meaning that your customers are unaware of the finance provider’s involvement, you need to consider how this could affect your relationship with your customers.

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Benefits of invoice finance

By putting additional working capital into your business through invoice finance, you can:

  • Avoid the need for fixed-term loans.
  • Cover your payroll and other regular commitments.
  • Invest in business growth.
  • Avoid long delays from slow-paying customers.

Credit terms of up to 120 days are not unusual. Invoice finance helps provide the funds you need to bridge that gap.

How invoice finance brokers help you

There are many different finance providers in the marketplace, offering differing forms of invoice finance. Each provider has their own criteria, terms and preferred markets. 

It can be difficult for a business that’s unfamiliar with all these providers to find the option that’s right for them. 

Invoice finance brokers, like JD Capital Finance, help businesses to quickly find the provider and arrangement that’s most appropriate for their needs. 

We know what finance deals are available today, and we know what’s worked well for other businesses like yours. This allows us to match you quickly with a finance provider, and to help you through the application process.

If you think invoice finance might be right for your business, get in touch with us today.

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders.  Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority in the UK (FRN 958123).
© Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority (FCA) in the UK. Their reference number is 958123, and you can use that to find them on the FCA register.