Then, when the customer pays the invoice, Sarah gets the remaining value of the invoice (£750) minus fees (£150), so she receives £600. Sarah shows the invoice to the lender and receives her advance of £4,250 within a couple of days. The lender agrees to advance her 85% of the invoice (£4,250). Remember, the value of the invoice she wants to finance is £5,000. Sarah decides to go ahead and take out invoice finance for her small business. Sarah agrees to an invoice finance deal that will give her 85% of the invoice up-front, with total fees at 3%.
Sarah is owed £5,000 by a previous client for a completed project, but the invoice has payment terms of 30 days. Sarah knows she'll need to pay for extra materials and take on another member of staff to do this new job, but she'll only get paid when it's finished. Sarah's Interiors Ltd has a big new project coming up. Step 5: The finance company provides you with the remaining balance (after subtracting the fees for their service). Step 4: Your clients pay their invoices into the finance company’s account. Step 3: The invoice finance company advances you up to 90% of the value of the invoices, sometimes within as little as 24 hours. Step 2: After you’ve set up your invoice finance facility the company will effectively buy the debt your customers owe. Step 1: You issue invoices to your customers on completion of work, with the usual payment terms of 30 to 90 days. There are different types, and you can also decide whether or not to retain control over your business’ sales ledger. Invoice finance could be worth exploring if you require funding for your business but are unable to offer assets as collateral for a loan. Invoice finance isn’t free, however, and the lender will subtract their own fees from this final sum. When your customer finally pays up, the invoice finance company will provide you with the remaining value of the invoices.
These funds can be used to bolster your cash flow or to invest in an area of your business that needs funding.
So, instead of waiting weeks or months to get paid, you can secure a percentage of the value of your invoices quickly – in some cases within 24 hours.ĭepending on their risk criteria, an invoice finance company will typically provide up to 90% of the value of your invoices immediately. Invoice finance lets you use your unpaid invoices as security for funding.
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