Invoice financing, also known as confidential invoice discounting or factoring, is a genuine alternative to traditional bank funding and in many cases is a better option for businesses.
Here are our top 5 reasons to consider this type of funding against other forms of bank debt:
1. The facility increases in your busy periods
In principal your business should require more working capital in times of higher trading and so a facility that moves in the same cycles as your annual sales pattern should offer a better solution than a fixed overdraft facility.
2. Often, no other security is required
It is often a pre-requisite of traditional bank funding that tangible security is required against any facility offered, either by a charge over company assets or through personal guarantees from the owners. Invoice financers take a charge over the debtor book of a company which will always exceed the level of monies advanced and so often no additional security will be required.
3. The facility grows with you
The aim of every business is to grow, so it makes sense to opt for funding lines that grow with you. Whereas an increase in existing facilities will need to be negotiated with banks, the cash available through an invoice financing facility grows with your sales ledger.
4. Added benefits
Bad debt insurance is often available alongside invoice financing facilities affording business owners peace of mind against any potential vulnerability of customer defaults.
5. Cash availability
Invoice discounting is far more likely to offer your business a higher availability of cash than a traditional overdraft facility would. This is because funding can be advanced against sales invoices for a period of between 60 – and 90 days whereas overdraft facilities are typically capped at 10% of annual turnover equating to just over 36 days of sales.
Invoice financing therefore offers a flexible solution to working capital requirements and is often a more suitable than the more rigid restrictions of traditional banking facilities.