Finance is always a difficult subject to understand, especially with so many different terms being thrown around. If you think about your own personal banking situation, you’ve probably heard terms such as ISA, APR and savings accounts and it’s no wonder that people get themselves into debt – through no fault of their own – they just don’t understand what the terms mean and why they’re so important.
In a business sense, however, you quite simply have to understand every term relating to business accounts because if you don’t you may find that your company is paying out an unnecessarily large amount on your rates or spending more than you have available to you which, as any director or owner will tell you, is a cardinal sin in the business world.
One such phrase used in relation to businesses is invoice finance which sounds highly complicated to those who aren’t trained in accountancy, banking or business management; but in actual fact it is simply defined as the money raised against your outstanding invoices. Sterling Invoice Factoring have written a really good summary about how it works on their website, saying that it starts when a business raises an invoice and sends it to the fund provider, who will then make an amount of that invoice – which they estimate to be around 85% – available, and then finally you can have the balance minus a pre-agreed service charge when the invoice is settled.
The questions you may be asking at this point in time are “why does my business need this” or “what are the advantages of it?” Here are five advantages of invoice finance which might help you to put your company finances in order:
Firstly, you get access to your money much quicker than you would by simply posting or emailing out your invoices. Some companies can take weeks, even months, to pay for the services or goods you’ve provided which can be infuriating from a business perspective because you’re looking to reinvest that money either in new equipment, business development or employee wages. Invoice finance will allow you to have much faster access to the money that is rightfully yours.
Using invoice finance through an agency like the aforementioned Sterling Factoring means that you can focus your time on your own company rather than chasing others for payments. When you’re trying to sell your own goods and services you don’t want to be going through what is essentially down time by doing other tasks when an agency could be doing it for you leaving you to focus on your busy task list.
There is the possibility for anonymity which will mean that your customers will still think they are dealing directly with you, the company that they signed the contract with, rather than an external agency which can seem intimidating.
You can invest in invoice finance for just the one outstanding invoice, you don’t have to do it once you have a certain number meaning it’s really easy and you can deal with as many or as few as you choose professionally and the remainder personally.
Finally, you don’t have to reapply every time your business grows, like you would with a loan or overdraft. As your business grows, your lending limit will grow with it meaning you don’t have to waste time filling in application forms and dealing with banks.