Jamie Baggaley, director at J&J Commercial Finance, talks unLTD through invoice finance and the different products available
Invoice finance is a way for a business to borrow money against its outstanding invoices.
When you issue an invoice, you may have to wait anything up to 120 days (depending on your terms) until your client pays. Invoice financing enables you to get access to those funds within days so you no longer have to wait until your client pays you.
What are the different invoice finance products?
There are broadly three different types of invoice finance available to businesses:
Invoice Discounting – This is probably the most straightforward type of invoice financing. The business is still hands-on with its invoices and will run its own credit control.
Invoice Factoring – With this product the lender is more closely involved in the transaction. The lender will generally handle the collection of invoices from your clients and act as your credit controller. They will then collect the debt and make the remaining funds available to the business.
Selective/Spot Invoice financing – This product enables you to select the invoices that you want financing rather than the ones above that look at all of your invoices.
What are the advantages?
With the advances in technology and the rise in cloud-based accountancy software, this is dramatically increasing the speed at which businesses can access their funds. Depending on the lender, this could be anything up to 48 hours of invoices being issued (if not quicker), so its number one advantage is that it speeds up access to funds so you’re not having to wait until the end of your terms of business to receive the funds.
Invoice finance can be used for start-up businesses, so if you only have a relatively short trading history you may be able to start to receive an advance on your invoices. The lender will generally look for a history on how you have been collecting invoices and want to see a few examples of invoices raised, terms being issued and the collection of those invoices.
Bad Debt Protection
So, what happens if your invoices can not be collected or the businesses within your supply chain cease trading? This is where Bad Debt Protection can come in. This is a type of insurance that will cover you should businesses within your supply chain cease trading, often if they enter liquidation or if your debtors’ default on the invoice. The insurance will provide cover against the outstanding invoices so that your business still receives some of the invoice due.
Find out more about invoice financing or bad debt protection and how it can support your business. Contact Jamie Baggaley on 01709 805 624 or Jamie.Baggaley@JJCommercialFinance.co.uk
