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Using Invoice Factoring to Finance your Business |
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Why use finance?
Using Credit Cards
Invoice Factoring
Lease Finance
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About CYB
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You may not have heard about this method of raising finance. It is usually promoted by banks to more established businesses and is also known by the following terms:
- Invoice Finance
- Invoice Discounting
- Trade Finance
- Invoice Factoring
What is Invoice Finance?
A bank or financial institution will pay you a percentage of the invoice value, when you raise the invoice. They will then pass that invoice to the customer and collect the amount owed from the client. Sounds good? Well you certainly get the money quickly, but there are some drawbacks. Firstly, you don't see all of the money. The bank take a percentage (well, what did you expect?!) and you have to sign a contract to put all your invoices through the system, you can't pick and choose the bad payers. Another drawback is that if a customer doesn't pay at all, the bank will reclaim that money back from you until it is paid. It is not guaranteed money.
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Case Study:
A printer was having trouble being a good printer and a good debt collector at the same time. He turned to invoice finance at the suggestion of his bank. Three years later, he is trying to remove himself from the agreement but is finding it tough.
- Alan says:
"I have to say that if it wasn't for invoice financing, I'm doubtful that I'd have a business at all. Customers were taking longer and longer to pay, but I still had cash for wages and stock to find. Without people to print and paper to print on, I'd have been finished. The cashflow is in a lot better condition now and I feel that I can concentrate a lot more on the quality and customer service, but I feel like I am locked into this Invoice Factoring and unable to trade my way out of the agreement without putting some other kind of finance in place."
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