Have you ever found yourself struggling to cover day-to-day expenses, because you’re waiting for your customers to pay you? Don’t worry, this is a common scenario for business owners, and it’s where invoice finance comes to the rescue.
In this blog, I’ll be aiming to demystify invoice finance and explore how it can be a financial lifeline for small businesses.
What is invoice finance?
In a nutshell, invoice finance is a financial solution which allows you to quickly access the cash tied up in your unpaid invoices. You’re essentially getting the money you’re owed by your customers immediately, without having to wait for them to pay.
Here’s how it typically works:
1.
You issue your invoices
You provide your goods or services to your customers. You then send out invoices with payment terms.
2.
There's a cash flow gap
Now you’re waiting for your customers to pay those invoices. This creates a gap in your cash flow.
3.
Invoice Finance Steps in
This is where your invoice finance provider steps in. They pay you a significant portion (usually 80 – 90%) of the invoice’s value immediately. Often within a matter of days.
4.
Payments are Collected
Your customers then pay the full amount of the invoice to the invoice finance provider. Who will deduct the financing and service fee and return the remaining balance to you.
Factoring vs Invoice Discounting
Factoring: Invoice Factoring is where the invoice finance provider handles credit control and chasing up payments on your behalf. Your customers are also made aware of the factoring arrangement.
Discounting: Invoice Discounting is where you handle your own credit control. The finance provider works more in the background. This is a more discreet option as you don’t have to tell your customers about the financing arrangement.
Please note: Apollo does not offer invoice discounting. We instead offer a Client Handles Own Credit Control (CHOCCS) service. This is where you handle your credit control, but your customers will still be made aware of the factoring arrangement.
The Benefits of Invoice Finance
Immediate Cash Flow Boost
One of the best things about it is the immediate access to cash it provides. Instead of waiting weeks or even months for your customers to pay their invoices, you get the majority of the money in a matter of days.
This can be a game-changer. Allowing you to cover upcoming expenses, capture new opportunities, or just have peace of mind knowing you have the money when you need it.
Effective Cash Flow Management
Income can be unpredictable when you’re a small business. Seasonal fluctuations, delayed payments, and unexpected expenses can strike at any time.
Invoice finance provides stability by turning those unpaid invoices into cash. This stability helps you manage your finances better, making it easier to meet financial obligations.
No More Hassle Collecting Payments
Chasing late payments can be a frustrating and time-consuming process. It can strain customer relationships and take your focus away from important business activities.
With invoice finance, the responsibility of collecting payments often falls to the finance provider. They have the resources to ensure timely settlements, leaving you with more time to concentrate on your business.
More Flexible than Traditional Loans
Traditional loans can’t match invoice finance’s flexibility. You’re not taking on any debt or repaying a fixed amount.
Instead, you’re getting the money already owed to you, just earlier! This makes it adaptable to your cash flow needs and grows alongside your business.
Accessible for Small Businesses
It’s not limited to large companies. Small businesses can also benefit! It’s specifically designed to address the cash flow challenges faced by smaller businesses.
Better yet, with Apollo Business Finance, we don’t worry about adverse credit history or CCJs. We believe every business deserves a chance to succeed!
When Should Small Businesses Consider Invoice Finance?
Invoice finance is a valuable financial tool for most small businesses. However, there are some scenarios which benefit the most:
Cash Flow Gaps
Small businesses often experience cash flow gaps due to the delay between service delivery and payment. Invoice finance covers that gap by providing immediate access to that cash.
Seasonal Fluctuations
Many businesses face uneven income throughout the year. Off-seasons can be challenging. Invoice finance can help bridge income disparity by providing consistent cash flow.
Rapid Growth
During growth periods, you may face increased demand for working capital to meet staffing or inventory costs. Invoice finance offers a flexible solution that can quickly adapt to any requirements.
Late-paying clients
Small businesses often experience cash flow gaps due to the delay between service delivery and payment. Invoice finance covers that gap by providing immediate access to that cash.
Protect Supplier Relationships
If you’re struggling to pay suppliers on time due to cash flow, it can put some tension in your relationships. Invoice finance ensures you can meet those obligations on-time.
Managing Operations
When it’s covering payroll, rent, utilities, or stock, consistent cash is needed. Invoice finance offers a predictable source of working capital, helping you manage these costs with confidence.
Am I Eligible?
At Apollo, we’re pretty lenient with eligibility criteria. Here’s our criteria:
- Engage in B2B transactions with extended payment terms.
- Have a minimum turnover of £60,000 per year.
We’re also happy to fund regardless of business size, adverse credit history, and CCJs.
Some financial providers might have stricter eligibility criteria. It’s good to shop around and find a provider that works best for you.
If you’d like to learn more about our eligibility criteria, check out our FAQ page.
Fees and Costs
Understanding the financial aspects is important. There are a few key fees and costs to consider:
1. Service Fees: Providers charge fees for their services. These are typically a percentage of the invoice amount, which can range from 1% to 5% or more.
2. Credit Control Fees: Some invoice factoring companies may charge you credit control fees. However, Apollo offers this free of charge.
3. Additional Costs: Some providers may have additional charges. Such as setup fees, termination fees, or administration fees. It’s important to discuss these additional charges with your provider.
Because it is a tailored financial service, fees can vary between different facilities. If you’re interested in invoice finance, make sure to speak to your provider about fees.
How to Get Started with Invoice Finance
Getting started is easy! We’ve aimed to make the process as simple as possible:
Submit Your Application
Submit your application and gather the necessary documents. This typically involves providing financial information.
Approval and Setup
We’ll then assess your application. If approved we’ll work together to set up your financial arrangement in a matter of days.
Get Paid Within Days
Once the facility has been set up, you can start getting paid! You’ll be assigned a client manager and a log-in for our online portal.
