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How invoice finance works

What is invoice financing?

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Invoice financing is considered to be a form of short term borrowing which is extended by the finance providers based on unpaid invoices. It allows the company to meet its short-term liquidity needs based on the generated invoice that are unpaid by the customers. Unpaid invoices acts as an accounts receivable, which means that the company will receive that specific amount but at some later date.

If the company goes through a liquidity crunch in this specified period, it has the option to go for invoice financing for meeting its liquidity requirement. The company can use the cash obtained from invoice finance to pay for various business activities.

Types of invoice finance

You must know that by using invoice finance you can get up to three times more cash than traditional forms of funding. Moreover, your borrowing power keep growing along with your business turnover.

How invoice finance works

  • 01
    You provide customer with goods and invoice them
  • 02
    You then have to send the invoice details to the finance provider
  • 03
    Upto 90% of the face value of the invoice is paid to you, usually in first 48 hours (percentages can vary as per risks involved )
  • 04
    You ship the products and the buyer pays us later when the goods are received
  • 05
    After the debtor pays, the remaining value of the invoice that you didn’t receive earlier will be paid to you – less a service fee
How invoice finance works

Invoice finance features

High value financing

You can pay all your creditors on time and further can manage your cash flow in a better manner.

No Collateral required

No need to put your valuable assets in risk, we have unsecured loan that do not require any collateral.

Fast and transparent

100% paperless approval makes it fast to get finance in your account.

Flexible repayments

Avail convenient repayment tenor on your business invoice finance till the time you receive payments from your debtors.

Invoice finance benefits lenders as unlike extending a line of credit that can be unsecured and can even leave little recourse if your business does not repay what is being borrowed, invoices can be used as collateral for invoice financing. Additionally, lender also limits its associated risk by eventually not advancing the overall amount of the invoice and the borrowing business.

Single and Selective Invoice Finance

Some finance providers use finance for their whole sales ledger, and it is even possible to arrange finance for a single invoice.

Number of times it is also called spot factoring, single or selective invoice discounting and this facility is considered as an ideal for businesses who usually rely on fewer invoices of a larger value. Within such situations late payment can also put profitable business into some critical situations.

Read more about selective invoice discounting

What are the costs?

Since invoice finance is a new term for you thus, you need to be a bit careful for understanding all of the associated costs, fees and charges which are levied by the providers, and specially for avoiding hidden fees. Usually, invoice factoring and discounting charges includes the following:

  • Service charge
  • Discount charge

What is Import Invoice Financing?

Import invoice finance typically helps businesses to overcome certain challenges which may encounter while trading overseas. When a company or business has to pay out for commodities, some amount has to be delivered to them in advance, and in addition the time-delays can cause immense strain on a company's working capital. This specialist form of trade finance results in effectively speeding up the payment cycle and this is possible by allowing the importer or buyer to raise capital before receiving of goods actually takes place.

What is Invoice Trading?

Invoice Trading, also termed as peer-to-peer lending usually allows businesses in auctioning their invoices online for raising rapid capital for improving the company's cash flow. It has its own advantages for trading internationally as online trading platforms are highly used by investors and traders from all over the world, and Connect2India can help in accessing funds for invoices with ease.

Invoice Finance Example

A big new project is coming up to ABC ltd. They very well know that they will need to pay for extra commodities or materials and will have to take on another member of staff for performing this new job, and they will be getting paid only when it’s finished.

ABC already is owed $5,000 by the previous client for a finished project, but the invoice had the payment terms of time period of 30 days. ABC further agrees an invoice finance deal which will give them 85% of the invoice up-front, having totalled fees along with charges at 3%.

How invoice finance benefits you

  • Invoice financing is considered to be more flexible than business loans or other finance methods.
  • Decisions to lend against invoices are made faster as compared to some other criteria.
  • The funding grows in-line along with the company’s turnover.
  • You can get a greater level of borrowing against such assets.
  • Help to reduce the risks of late payments.

How Connect2India helps in invoice finance offering

At Connect2India, our invoice finance solutions allow you to get an advance against your outstanding customer invoices which can be on a selective or whole ledger basis.

It’s quick and easy to access funds that mean you can get the cash flow you need to get on with business. With Connect2India, you get:

  • Fast funding for business needs: quick funding decisions are taken
  • Hassle free experience in finance
  • Provides with personal customer support
  • No hidden fees, straight forward cost is known to you
question_answer

FREQUENTLY ASKED QUESTIONS

1. What is invoice finance?

Invoice financing is considered to be a form of short term borrowing which is extended by the finance providers based on unpaid invoices. It allows the company to meet its short-term liquidity needs based on the generated that are unpaid by the customers


2. Is invoice finance regulated?

Invoice finance industry is not currently regulated by the Financial conduct authority (FCA).


3. How much is invoice finance?

Following cost may include in invoice finance:

  • Discounting cost
  • Service fees
  • Audit and re-factoring charges
  • Included transactional charges
  • Additional cost for credit protection

4. What is the difference between invoice discounting and invoice factoring?

Differences Invoice discounting Invoice factoring
Suitable for Medium to large sized business Small to medium sized business
Typical initial advance 80% of the invoice value 85%-90% of the invoice value
control Your business The factoring company
Collection of payment Your business The factoring company
Known to customer Customer is not aware about the involvement of third party Customer is aware about the involvement of third party
cost Less expensive than invoice factoring More expensive than invoice discounting
Risky to lender More risky to lender Less risky to lender

Difference between invoice factoring and discounting


5. What is needed for invoice finance?

Generally the involvement of three parties in needed:

  • The funder: who is responsible for advancing fund against invoice or receivables.
  • The client: who sends the invoice.
  • Debtor: who pays for the invoice.

6. What are the types of invoice finance?

There are two main forms of Invoice finance:

  1. Invoice Factoring
  2. Invoice Discounting

7. What is invoice factoring?

Invoice factoring can be considered as a type of short term accounts receivable finance, I which you effectively ‘sell’ the outstanding invoices to some third-party i.e. a commercial finance company. In global trade it is often, that there exists a gap between the finished task and invoice being sent and when the customer actually makes the payment and this gap has to be filled for business growth. In such situations invoice factoring adds value.


8. How does invoice finance work?

  1. You provide customer with goods and invoice them
  2. You then have to send the invoice details to the finance provider
  3. Some percentage of the face value of the invoice is paid to you, usually in first 48 hours (percentages can vary as per risks involved )
  4. Next step is payment chasing. It totally depends upon the type of invoice finance, either you will carry out payment chasing or the finance provider will take control on behalf of you
  5. After the debtor pays, the remaining value of the invoice that you didn’t receive earlier will be paid to you – less a service fee

9. Is invoice financing a good idea?

It depends on the business nature along with its particular needs. Typically your business’s size and its ability to effectively manage the sales ledgers will also be key considerations to choose one among these.

If you have a small to medium sized business that had certain problems with credit control and collection payments in the past, then invoice finance will be a better option. It can act as a more solid solution for your businesses needs as it will provide you increased credit control services.


10. What is invoice discounting?

Invoice discounting is can be considered as debtor finance. It helps those companies which are having cash flow problems as the customers are paying invoices in 30 to 90 days. Offering payment terms is mandatory while working with large commercial and industrial customers.


11. Who uses invoice financing?

Invoice financing is particularly suited for the business in specific areas such as:

  • Construction
  • Recruitment
  • Manufacturing
  • Wholesalers
  • Printers
  • Couriers

But in any form of business which provides products and services to other businesses and provides clients with credit terms of 30-90 days, Invoice finance is the key for solving the problems as these are associated with slow payment.

Want more information about invoice finance? Talk to our trade finance experts now.

Features of Connect2India finance

Why Connect2India

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Easy processing

Complete online application process makes it easier for us to process forms faster and provide same day loan approvals.

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Fast disbursals

With online loan processing, business loan is disbursed within 3-5 business days of loan approval.

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Collateral free loans

No need to put your valuable assets in risk, we have unsecured loan that do not require any collateral.

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Fair interest rates

Our advanced algorithms determines the best rates for the type of loan you business require.

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No hidden costs

There will be no hidden costs or any other charges involved. Only processing fee of 2% is charged

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Flexible repayments

Loan repayment structure can be customized depending upon how your business is growing.