Invoice factoring or invoice finance is an effective way for businesses to raise money against their unpaid invoices, revitalising cashflow and enabling the business to grow and develop with minimal risk. Invoice factoring and discounting releases cash payments that you may have otherwise had to wait months to be able to use. The finance system is not without its disadvantages, but many businesses find it is an appropriate solution to short term or long term financial needs. Here we look a little further into the benefits of invoice factoring, and whether it is right for your company.

What Are the Advantages of Invoice Factoring?

One of the main benefits of invoice finance is that your business does not have to put up any assets against the finance as security. You may not own your own business premises, and you might not have high-value assets like industrial equipment, which means it is difficult to secure a bank loan. You may even be able to secure more cash than you would with a bank loan or an overdraft.

Invoice finance is a relatively safe way to gain access to immediate cash – the amount of cash available is tied to your sales ledger, so you don’t have to worry about going too far out of your budget buffer zone, according to

If you choose invoice discounting over invoice financing you can carry out the financing deal with confidentiality so that clients and customers do not know you are working with this type of finance. You collect the payments yourself and nothing else changes from your original systems, expect you already have the money to use.

Are There Any Disadvantages?

Be aware that you can usually only borrow against payment from other businesses – against commercial invoices, rather than invoices from the general public. This may not suit some businesses, although it is usually appropriate for many. If you want to choose invoice discounting you will need to be able to prove you have a strong in-house credit collection program, otherwise it may be more appropriate to choose an invoice factoring deal instead. Also, beware of charges attached to the invoice finance although a reputable company will make these charges visible up front. You may not get as much money back from the invoice as you would if you managed it yourself, but the instant cashflow you develop helps you make more money in the interim.

Invoice financing is an effective way to get your hands on money that is tied up in invoices, and is particularly effective when you are faced with customers who do not pay on time. Your money is already designated to you – with invoice finance you are simply getting your hands on it earlier.

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