Alternative Business Finance through Unpaid Invoices

March 9, 2015 by Andy Crow

Alternative Business Finance through Unpaid Invoices

For small and medium businesses, unpaid invoices can seriously impact upon cash flow and the ability to maintain the day to day running of normal operations. In many cases this will lead to serious trading difficulties which may threaten the continued existence of the business or company.

Invoice Financing can provide businesses with instant access to cash tied up in outstanding invoices and are becoming popular in the UK as an alternative to an overdraft or a loan.

The two main types of invoice financing in the UK are;

1. Invoice Discounting – The lender will release a percentage of the value of outstanding invoices as soon as they are raised, typically between 80% and 90%, enabling the business to keep operating without waiting to be paid. When the invoice is settled by the customer, the remaining percentage is returned less the lenders fees which may include arrangement charges and interest.

2. Invoice Factoring – Similar to Invoice Discounting by releasing funds against the value of outstanding invoices. The major difference is that the Invoice Factoring provider will then make arrangements directly with customers to collect these outstanding payments, giving the business owner more time to focus on day-to-day operations.

As this type of business finance becomes more popular, there is increasingly more competition among the providers. High Street Banks have traditionally been the major source of this type of funding but there are now alternatives such as the smaller Merchant Banks and so-called ‘Challenger Banks’ who may offer more competitive terms.

If you believe this type of funding could provide a solution to the struggles caused by outstanding invoices then Chorus Business Advisers can help you make the right choice for your business. Please call 0845 8671263 or email info@chorusadvisers.co.uk for more info.