A guide to Invoice Finance

What is Invoice Finance?

Invoice finance is a type of funding that allows businesses to borrow money against their outstanding invoices. Instead of waiting 30, 60, or even 90 days for customers to pay, businesses can receive a significant portion of the invoice value upfront. Once the customer settles the invoice, the remaining balance—minus the lender’s fees—is paid to the business.

This type of financing is ideal for businesses that rely on issuing invoices with extended payment terms and need quicker access to working capital to support operations or growth.

Types of Invoice Finance

1. Invoice Factoring
Invoice discounting allows you to retain control of your sales ledger and customer relationships. In this case, the lender provides the funds, but you are still responsible for collecting payment from customers. This option is typically more discreet since your customers may not know that you are using invoice finance.

2. Invoice Discounting
Unlike secured loans, unsecured loans do not require collateral. This makes them a popular option for businesses that don't have substantial assets. However, they may come with higher interest rates and shorter repayment terms.

How Does Invoice Finance Work?

1. Submit Your Invoice
After issuing an invoice to your customer, you submit the unpaid invoice to the invoice finance provider.

2. Receive Advance Payment
The lender will advance you a percentage of the invoice’s value—usually between 70-90%. This gives you immediate access to working capital without having to wait for customer payment.

3. Customer Pays Invoice
Your customer will pay the invoice under their normal payment terms.

Benefits of Invoice Finance

• Improved Cash Flow: Waiting for invoices to be paid can strain your cash flow, particularly when dealing with extended payment terms. Invoice finance gives you fast access to cash, allowing you to cover operating expenses, payroll, or reinvest in growth opportunities without delay.
• Flexible Funding: Since invoice finance is directly linked to your sales, the amount you can borrow grows as your business grows. This makes it a flexible and scalable solution that adapts to your needs.
• No Need for Additional Debt: Invoice finance isn’t considered a loan, meaning you’re not taking on additional debt. Instead, you’re simply accessing the value of your already-earned revenue.
• Outsource Credit Control (with Factoring): With invoice factoring, you can outsource credit control and collections to the lender, saving you time and reducing administrative burdens.

Is Invoice Finance Right for Your Business?

Invoice finance can be especially beneficial for businesses that operate with long payment terms or experience cash flow gaps between invoicing and customer payments. It’s commonly used by industries such as manufacturing, construction, logistics, and services, where waiting for payments can slow down operations.

However, it’s important to consider the costs involved. While invoice finance provides quick access to cash, fees can add up depending on the provider and the agreement. Before committing, it’s essential to assess whether the benefits outweigh the costs for your specific situation.

Ready to take the next step?

If you think invoice finance could be a good fit for your business, the next step is to explore your options. At Lendaly, we offer tailored invoice finance solutions that help businesses unlock cash tied up in unpaid invoices. Our team works with you to understand your needs and find the best financing option.