Invoice Financing: What Is It And How Does It Work?

By Author: Parker Petar
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More and more companies are turning to invoice finance services to improve their cash flow and to ensure that they have the required finances to run their businesses efficiently today - and to survive and grow in the future. This is particularly important in today's business climate. But you'll come across so many different terms and references when discussing invoice finance that it can become confusing. It's important to make sure that you understand the jargon.

Invoice finance, sometimes referred to as invoice factoring, is simply a way of improving your company's cash flow. It is a method of raising cash against your business invoices through a reputable finance company.

How Does It Work?

There are five simple steps to the invoice finance process.

1. You supply your goods or services to a customer and issue an invoice for payment. With factored invoices, they are issued as payable to the finance company.
2. You send a copy of that invoice to the finance company who then pays the agreed percentage ...
... advance against the invoice total, typically within a couple of days.
3. When your customer settles the invoice, payment will either be made direct to the finance company or in the case of invoice discounting; the payment may need to be made into a business account held with the lender.
4. The finance company then pays you the balance of the debt minus the agreed service charges.
5. Monthly sales ledger statements are issued to the borrowing business by the finance company.

Benefits of using Invoice Finance

There are a number of major benefits to using Invoice Financing in your business.

Improves cash flow - cash flow is the lifeblood of your business, so it's important that it is managed effectively. Having access to money that is owed to your business will allow you to be more competitive and to further develop your business.

Releases cash - invoice finance enables you to raise cash against your business invoices, rather than having to wait weeks or months for payments.

Saves valuable time - your business is relieved of the administrative burden of invoice management, allowing you to concentrate on other important elements of your business.

Offers flexibility - invoice finance gives you better access to your finances, allowing you to be more flexible. You can also negotiate prompt payment discounts from your suppliers, giving you greater savings.

Hitachi Capital is a market leader in invoice factoring in the United Kingdom. Visit their website for more information on invoice discounting and SME financing.