Invoice finance is a quick financing option that allows you to unlock the value of a customer’s invoices. Companies that have B2B consumers within the goods or services sector tend to use this type of funding.

The types of invoice finance mainly fall under either invoice factoring or invoice discounting, but can also include selective invoice discounting, debt factoring, accounts receivable factoring and spot factoring.

A business will send clients or customers an invoice for the service/goods provided. Once that is done, the invoice finance provider will send the agreed percentage of the overall payment to the business within 48 hours.

As agreed with the finance provider, the business can choose to either the take responsibility and chase payments due or the finance provider will do it – this is the main difference between invoice factoring and invoice discounting

Once the client has paid the invoice, the total remainder of the invoice is paid to the business, minus any agreed service fees agreed with the funder.

Depending on the company turnover, a minimal service charge and discount charge of typically between 0.75% and 2.5% is added by the finance provider, which covers the lender’s management, collections and administration costs. The interest paid to the finance lenders by the business is based on the amount borrowed.

One of the many advantages with invoice financing is the increased availability of cash flow.

A benefit to business is that once an invoice is issued, rather than waiting days, sometimes months to be paid by a customer, a business has the advantage to release up to 95% of the value of an invoice within 24-48 hours.

Invoice financing can be either used for certain areas of the business or for the entire business, and especially useful for securing larger invoices.

There are two main types of invoice finance – discounting and factoring.

The difference between the two is that invoice discounting is the more private facility available and invoice factoring is a more hands-on, visible facility for the lender.

The better solution depends on what the business prefers.

If the facility needs to remain confidential from the business’s client, then invoice discounting is the right product as it means that the business maintains control of their sales ledger and is responsible for chasing payment.

However, if the business is happy to pass this control and responsibility onto the invoice finance provider, then factoring could be a better solution. This will mean that the provider is responsible for chasing payments, thus notifying the business’s client that an invoice finance facility is in place.