An Introduction to Small Business Finance – Factoring, Invoice Discounting, Invoice Finance

To help you find the right type of finance for your business, here is an introductory look at the main types of business finance, including; factoring, invoice discounting, invoice finance, bank loans, credit cards, grants, leasing, outside investors, family and friend loans, and the small firms loan guarantee.
The article includes various links to more detailed information so you can help make your mind up.

Factoring, Invoice Discounting, Invoice Finance

One of the quickest forms of low cost business finance is factoring and invoice discounting (often known collectively as Invoice Finance), where you can get up to 85% of the value of your invoice immediately; and the remainder (minus the factoring company’s fee) after the money is collected. Factoring is one of the best ways to get quick finance, improving your cashflow and allowing you to make the most of your sales without risking late payment.

How Does Invoice Finance Wor k?

Put simply, if you have sold a product for £1000, a factoring company would give you up to £850 for the invoice. Once the invoice has been paid the factoring company will take their fees from the remaining £150 and give you the rest.

How Does Invoice Finance Benefit Your Business?

Using factoring or invoice discounting allows you to get the money for your sales quickly, keeping your cashflow up instead of waiting 30/60 days for payment.
In many cases the invoice finance company will collect the debt on your behalf; saving time you can use for other areas of the business. As sales increase, your potential funding increases. Compared to other quick forms of finance such as credit cards and overdrafts, invoice financing is cheap. It also carries significantly less risk, as you are only getting finance on sales you have already made; and there is no need to use your home (for example) as security for the finance. There are many invoice finance companies, however; we recommend you factor, unlike some other companies. Factoring Finance for UK Businesses - FAQ Factoring and Invoice Finance - Advantages and Disadvantages

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