Invoice finance

Invoice finance

Invoice finance is a term that is used to describe a wide range of asset-based finance facilities within which the businesses sell their accounts receivable or invoices to some finance provider or a third party for receiving a percentage amount of their value. It is considered as a useful financing tool to facilitate businesses growth which gets hampered due to slow payment of invoices.

Invoice finance can be seen as a way of borrowing money and is totally based on what your clients owe to your business. Unpaid invoices usually represent money which has to be paid to you, but as a seller you have to wait for some time for payment terms to be fulfilled, which can be from 14 days to 90 days or even more. Invoice finance provides you with most of the cash immediately, such that you will not have to wait to get paid.

The concept of invoice is quite simple. It says is spite of waiting for a number of days and weeks in order to get paid for your invoices by customers, finance providers provide you with an advance amount of your invoices on immediate basis. This means you will be get paid faster for the work you have completed in such a way that you can focus on other tasks for running your business.

How Does Invoice Finance Work?

1.   Seller continues his business in a usual manner and invoice the clients and customers.

2.   Further the invoice details are passed towards the agreed provider by the seller.

3.   The finance provider pays the seller with an agreed percentage (this may vary company to company), often within the first 48 hours.

4.   As per the agreement, seller will be responsible for chasing the payment as usual if that is necessary, or the financier will do that on behalf of the seller.

5.   Seller receives the remainder amount of the invoice amount once the invoice is paid by the buyer, deducting the agreed service fees.

How invoice finance benefits you

●        Invoice financing is considered to be more flexible than business loans or other finance methods.

●        Decisions to lend against invoices are made faster as compared to some other criteria.

●        The funding grows in-line along with the company’s turnover.

●        You can get a greater level of borrowing against such assets.

●        Help to reduce the risks of late payments.

What are the Costs?

Since invoice finance can be new for you as an exporter and importer thus you should be careful while understanding involved costs, fees as well as charges which are levied by the providers and specifically to avoid hidden fees.

General invoice financing charges includes the following:

Service Charge

Service charges usually covers management costs, collections costs along with the administration costs, and it is charged as a percentage of your company’s gross turnover. The rate for this service usually lies between 0.75 and 2.5%.

Discount Charge

As you pay interest amount on a business loan, just like that the discount charge or we can say fee has to be paid which is levied on the money which you draw down. This average charge falls between 1% and 3% over base rate, and discount charge is calculated on a daily basis following the advance of the money. Which results in more charges if your customer takes longer to pay.

Discount charges has to be paid either on a weekly or monthly basis, depending on the preferences of the borrower.