Operating a small business is filled with challenges, especially in the ever-evolving economy. Maintaining a healthy cash flow is of paramount importance for all businesses=.

Invoice Finance, which is also known as accounts receivable financing, has become one of the more flexible and useful forms of funding that can empower small and medium sized businesses to successfully navigate the challenges of cash flow management. 

How exactly can Invoice Finance help your business? How does it work and should your business consider setting up such a facility? We’ll answer all those questions and more right here.

Understanding Invoice Financing

Invoice Finance is a financial arrangement where your business ‘sells’ its accounts receivable to a third-party financing company, such as ScotPac. Instead of waiting for your outstanding invoices to customers to be settled at the end of the payment term, you receive the amount owed to you up front. 

This gives your business immediate cash and unlocks the potential in your outstanding invoices enabling you to meet operational needs or re-invest in the business by taking advantage of growth opportunities presented by the market. 

No Loan, No Debt

While Business Loans come with their own advantages, Invoice Finance does not involve the taking on of any debt. 

Instead it allows your business to leverage the existing outstanding invoices as the ‘loan’s’ collateral, allowing fast, flexible access to capital.  

How Invoice Financing Works

As a business, you’ll provide goods and services to your customers or clients and issue them an invoice accordingly. This invoice will specify a standard period of time within which they need to pay you. Even for those customers who are punctual in their settling of invoices, this can take the full term to be done. In the meantime, your business may not have the cash flow required to continue operations or enable sufficient agility to react to changing market conditions and opportunities. 

Invoice Finance solves the problem by allowing you to sell the invoice or invoices outstanding to you to the finance provider. You are then provided with up to 95% of the invoices’ value as working capital to help finance your business immediately. 

While there are different forms of Invoice Finance, one way or the other, once the amount outstanding is recovered, you will then receive the remaining 5% of the invoices’ value, minus any administrative or service fees. 

Is Invoice Finance Worth it?

Every business’s needs and objectives are different and so there is not one size business finance solution that suits all. Nevertheless, despite the fees associated with Invoice Finance, for businesses looking for fast, reliable access to almost instant working capital, this option could be the fuel required to charge your business’s growth.

The added benefit is that because the invoices themselves serve as security for the line of credit there is no need for business owners to put up any security in the form of property. 

Who Can Access Invoice Financing

Unlike Business Loans and some other forms of financing, Invoice Finance is particularly suited to small and medium sized businesses who might not otherwise qualify for financial solutions with higher eligibility criteria.

If your business is facing irregular cash flow or regular delayed customer payments, Invoice Finance can be the tool you need to keep trading successfully.

While Invoice Finance is widely available and applicable across various industries, including product providers and service providers, it is only available to businesses who trade with other businesses and rely on invoicing as a form of payment. 

How Can Small Businesses Benefit from Invoice Financing

1. Improved Cash Flow

Invoice Finance will allow your business to accelerate access to cash flow by injecting immediate funds into your operations. Instead of waiting for money tied up in outstanding invoices, your business can meet its own financial obligations within days.

2. Faster Access to Funds

Invoice Finance is not the only financial solution to help businesses access working capital. But, unlike traditional financing methods, it does offer quicker and more efficient access, in as little as 24 hours, thanks to the lack of lengthy approval processes and restrictive red tape.

3. Mitigation of Payment Delays

Outsourcing the collection of invoice payments to a financing company not only helps to reduce the impact of delayed payments by ensuring you have working capital for your operational needs, it also allows you to focus on running your business rather than chasing up outstanding invoices.

4. Business Growth Opportunities

SMEs are often faced with the challenge of growing, which requires investment, whilst continuing to meet the current operational costs. Whether it’s expanding operations or product lines or even hiring additional staff and purchasing new equipment, Invoice Finance provides flexible funding without negatively impacting your business.

5. Risk Reduction

Invoice Finance can also act as a hedge against bad debt. Financing companies assume the risk of non-payment, rather than your business, so you can focus on the core operations of growing your company. 

6. Flexibility and Control

In addition to the ease and efficiency of access, Invoice Finance offers a unique level of control and flexibility for businesses. You can choose when and which invoices you offer as collateral depending on the financial needs and goals of your business. It’s all about getting access to the funding that will help your business in the ways it needs.

ScotPac – Invoice Finance for Small and Medium Enterprises

If you’re wondering how your business could best utilise the valuable tool that is Invoice Finance, you should contact the ScotPac team today. Our lending specialists spend the time understanding you and your business so that we can tailor a financial facility that suits your eligibility, operational mechanics and growth goals. 

We specialise in providing the fuel for our clients’ on-going success. So give your local ScotPac office a call today to arrange a comprehensive consultation and find the Invoice Finance solution for you.