Invoice finance explained
23rd August 2012
Amidst the financial insecurity of the current economy and the unwillingness of banks to provide traditional forms of lending to small businesses, more innovative solutions have been developed by invoice finance providers to help keep small and medium-sized enterprises afloat as well as enabling them to grow and develop towards a prosperous future.
Invoice finance is an asset based funding service, which enables businesses to receive a consistent flow of cash secured against their existing invoices.
What is invoice finance?
The main leading invoice finance solutions can be broken down into two distinct services:
* Invoice finance
* Invoice discounting
Invoice Finance involves a business selling their invoices to a third party, enabling funds to be accessed against the money owed to the business.
For small businesses, securing a regular flow of cash can be the most challenging aspect. The sales book may appear healthy, but whilst customers are paying for invoices, this can result in a deficit between what’s been invoiced and what is in the bank.
By choosing a funder to process these invoices, an agreed percentage of the total is released immediately with the remainder paid (minus a small admin fee) once their customer pays in full. The invoice finance provider will also take control of the administration of the sales ledger, allowing time for the SME to concentrate on the day to day business operations.
For those businesses wanting to keep the invoice finance agreement confidential; invoice discounting offers a viable solution. The admin of the sales ledger remains with the SME keeping any agreement confidential from their clients.
Why do businesses use invoice finance?
Businesses use invoice finance to improve cash flow, but it can also be used to reduce administration overheads.
What are the benefits?
Invoice finance offers an element of stability for businesses, as all monies received are held against debts agreed to be paid by their clients. The real advantage of this is that as the business grows and develops, issuing more invoices, so will the potential funding available.
Are Irish Businesses turning to invoice finance?
The Irish Government has set the banks SME lending targets as a tactic to help boost the economy. If SMEs do secure this funding – despite the media reports to the contrary – it isn’t necessarily the best position to be in, as the money is borrowed against terms and conditions set by the bank themselves.
Many Irish SMEs are now turning to invoice finance to avoid these restrictive terms and conditions as well as the added security it offers. The real challenge is ensuring all SMEs are aware of the non-traditional funding options available to them.
This article is brought to you by http://www.bibbyfinancialservices.ie/
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