Invoice finance has seen a rise in popularity over the recent years. In 2022, the total amount of funding provided through invoice finance was £310 billion. A substantial jump from only £22 billion in 2010.
With more and more business owners taking an interest in invoice finance, many are wondering whether it is suitable for their business. In this blog, we’re going to break down the top industries that would benefit from invoice finance.
Now just to clarify, these are not the only industries that can benefit from invoice finance. There are many industries we’ve left off this list. As there’d be too many. This is just a list of the most common industries.
So if you don’t see your industry on the list, don’t worry. It’s still worth enquiring with a factor to see if they’re able to work with you.
What is Invoice Finance?
Invoice finance is a financial tool that allows small businesses to borrow money against their unpaid invoices. It’s used by many businesses across the UK that have long payment terms or sell to other businesses on lines of credit.
If you work in an industry where late payment is frequent, invoice finance can bridge the gap between invoice issuing and payment. Making it a great tool to provide cash flow stability.
Here’s how it typically works:
- You generate an invoice for a customer
- You submit the invoice to the finance provider
- The provider will give you a percentage of the invoice upfront
- The provider will then collect payment from the customer on your behalf.
Invoice finance is a great option for many small and large businesses, as it provides a wealth of benefits to the user, including:
- Quick access to working capital
- Improve cash flow stability
- Increased flexibility
- Reduced risk
What Industries are Suitable for Invoice Finance
In the construction world, managing money can be a real challenge. You’ve got the big upfront costs for materials and paying workers, but then there’s this waiting game for clients to cough up the cash after the project’s done. That waiting can put a strain on your bank account. It makes it tough to keep up with day-to-day expenses. Plus, construction projects aren’t always a steady money stream, which adds another layer of stress.
That’s where invoice finance comes in. It gives you quick access to most of the money tied up in your unpaid invoices—usually around 80-90% of it. This instant cash injection is a lifesaver. It means you don’t have to wait for clients to pay up before you can cover important stuff like materials, pay your subcontractors, and keep your team happy with their wages. With this steady cash flow, you can keep the project running smoothly and make sure your business stays stable. No more being held back by money while you’re trying to grow and grab new opportunities.
Engineering projects often involve irregular cash flows, high working capital requirements, and long payment cycles, all putting a strain on the company’s finances. Invoice finance bridges the gap between project expenses and client payments, making sure that essential costs are covered.
It provides engineering companies with access to funds tied up in outstanding invoices. Enabling them to reinvest in their businesses, manage seasonal fluctuations, and take on more projects without taking on additional debt. Invoice finance can also remove the administrative burden of payment collections, freeing up time for business owners & employees to focus on more important tasks.
Healthcare providers often contend with slow payment cycles, particularly when dealing with insurance companies and government healthcare programmes. Invoice finance helps bridge the gap between service delivery and payment. Ensuring healthcare providers have the working capital needed to cover operational expenses.
This is important for meeting staff salaries, purchasing medical equipment, and managing variations in patient volumes. Additionally, healthcare providers looking to expand or invest in growth can use invoice finance without incurring additional debt. Outsourcing credit collection can also allow providers to focus on patient care while the lender handles financial tasks.
IT & Technology
Many IT & technology-based companies rely on contract-based projects, which can lead to irregular cash flow. Invoice finance helps bridge the gap between project completion and client payment, ensuring businesses have the necessary working capital to cover expenses and invest in growth.
Additionally, the technology sector often experiences rapid growth and scalability, making invoice finance a flexible solution that adapts to changing needs. With invoice finance, IT & technology companies gain a competitive advantage by accessing working capital without taking on additional debt. Allowing them to invest in R&D, and remain competitive in a dynamic market.
Manufacturers often contend with extended payment cycles, where they must wait 30, 60, or even 90 days to receive payment for their invoices. Invoice finance provides immediate access to cash based on the value of these outstanding invoices, ensuring consistent cash flow.
Manufacturers face significant upfront costs for raw materials, labour, and production, making working capital vital. Invoice finance helps cover these expenses and is especially helpful in fluctuations in demand and revenue. It also aids in financing inventory financing, supporting growth, and mitigating risks associated with economic downturns. Invoice finance offers flexibility and administrative support, allowing manufacturers to focus on their core operations while efficiently managing their accounts receivable.
Professional service companies are prime candidates for invoice finance due to their billing structure and extended payment terms. Service providers often bill clients based on hours worked or projects completed, resulting in irregular cash flow. Invoice finance provides immediate access to the funds tied up, ensuring a steady cash flow and quicker payments.
As professional firms grow, they may require additional resources for hiring, technology, and expansion. Invoice finance offers a debt-free, scalable financing solution to support these growth needs.
Staffing & Recruitment
Staffing & recruitment agencies frequently face irregular cash flows. This is a result of expenses associated with payroll and advertising costs for finding and placing candidates. Amplified by longer payment terms from customers, the industry can struggle with delays in accessing crucial cash.
Payroll, being one of the major expenses, poses a significant challenge. Invoice finance provides a solution by covering these costs whilst waiting for client payments. This ensures timely payment to employees. Additionally, seasonal or cyclical demands can lead to fluctuations in business activity. Invoice finance offers a flexible source of working capital. Allowing agencies to smoothly navigate any busy periods.
Invoice finance also supports the growth of agencies. It offers a means to invest in necessary growth without resorting to traditional debt. The quick placement cycles are unique to the industry and are also well-suited for invoice finance. Which ensures that agencies have the funds available for sourcing, vetting, and placing candidates.
Effective working capital management is crucial in the telecoms sector. Telecoms businesses often face continuous operational costs, infrastructure investments, and the need for innovative solutions. Invoice finance provides a solution, offering immediate funds without waiting for customers to pay their invoices.
The telecoms industry often faces project-based fluctuations. Invoice finance is great for bridging gaps during periods of lower revenue. The industry also faces significant capital expenditure for infrastructure development and maintenance. Invoice finance provides valuable cash to fund these investments without relying on internal cash reserves.
Telecom services are typically provided on contractual agreements. Invoice finance aligns with this by allowing companies to convert future cash flow into immediate working capital. This approach not only supports ongoing operations but also allows businesses to navigate rapid technological changes.
Transportation & Logistics
Transport & logistics companies often face immediate upfront costs, such as fuel, maintenance, and personnel expenses. Invoice finance is a great tool for bridging the gap between delivering services and receiving payments. This ensures businesses have the cash needed to cover operational necessities.
Transportation projects can also involve substantial sums of money, particularly for long-distance or international shipments. Invoice finance allows businesses to quickly unlock the money tied up in these larger invoices. Offering cash for ongoing operations and expansion projects.
Wholesale & Distribution
Wholesale & distribution companies often contend with a high volume of transactions and invoices. Managing cash flow becomes particularly challenging when waiting for payments from numerous customers. Invoice finance provides a quick way to turn these invoices into working capital. Offering a practical solution to meet financial needs.
Bulk purchases are also unique to the wholesale & distribution industry. This involves gathering goods in large amounts from manufacturers. This can put a strain on working capital due to the upfront costs of these transactions.