Invoice financing (also referred to as invoice discounting or accounts receivable financing) allows small businesses to quickly improve cash flow with more flexibility and zero debt.
Every business needs steady working capital in order to be successful, but slow-paying customers can derail even the best financial plan. Invoice financing companies help small businesses maintain consistent working capital.
With invoice financing, you could get a fast advance between 70-90% of the value of your invoices. The remaining 10-30% will be held in reserve. From this reserve amount, the invoice financing company will take their first fee (comparable to a processing fee — it can be around 3%). After that, the invoice financing company then collects a “factor fee” dependent on the time until the invoice is paid. For the most part, this is calculated on a weekly basis.
With invoice factoring the third-party company takes control of the sales ledger, chasing customers for settlement of invoices and managing the credit control of the business. They are also accountable for processing the payment of invoices.
With invoice discounting your customers are unlikely to be aware of your relationship with a financing company. You maintain responsibility for the sales ledger, payment chasing and invoice processing.