What is invoice factoring? 

A healthy cash flow is imperative to the ongoing success and growth of any business. Invoice factoring helps you to manage your cash flow by bridging the gap between the point at which you make a sale and the time payment is received from the debtor. 

There are different types of invoice finance available to your business: invoice factoring and invoice discounting. This article will tell you all you need to know about invoice factoring– what it is, and the benefits it can have to your business.   

What exactly is invoice factoring? 

Invoice factoring is a form of invoice finance, where an invoice factoring provider lends against your customer invoices, enabling you to receive most of the invoice cash value immediately rather than waiting weeks or months to get paid. 

 A key feature of invoice factoring is that your lender will be closely involved with invoice repayments. They will provide ‘credit control’ services to ensure your customers pay on time. Payments from your customers will usually go into a bank account controlled by the factoring company, and your customers will be aware that you use factoring. This is the crucial difference between invoice factoring and invoice discounting: with invoice factoring, your customers know that you’re using an invoice finance facility as the lender will typically chase any late payments on your behalf. However, with invoice discounting you will continue to deal with all customer communications yourself, and they won’t realise that you’re using an invoice finance facility.   

What are the benefits of invoice factoring? 

There are lots of benefits of invoice financing, such as: 

  • Gives you immediate access to cash without a loan 
  • Supports your business growth 
  • Offers a lower-risk option due to the fact that repayments are linked to invoices raised 
  • Offers a funding options that is no risk to your assets 
  • Gives your business access to cash quickly 
  • Reduce your risk of late payments and bad debts 
  • Your lender will provide ‘credit control’ services to ensure your customers pay on time, which allows you to concentrate on growing your business rather than chasing debtors.  
  • Factoring providers can also credit check potential customers for you to help avoid bad debts.  
  • From the lender’s perspective, factoring is lower-risk because they’ll have more control over ensuring your customers pay you on time. This means that if your business has low turnover, a short trading history, or any other challenging circumstances, invoice factoring may be a good option for you.  

Invoice factoring: how PMD can help 

Invoice factoring (and invoice finance in general) can be a great way to improve your cash flow situation.

PMD are experienced in securing invoice finance for clients, and work with businesses across all types of sectors to help facilitate their growth. PMD has access to over 50 invoice financing companies in the Invoice Finance market, and will help to take the hard work out of applying for invoice finance, leaving you free to concentrate on running your business.  

PMD’s dedicated team will take the time to understand your business and find the right funder to support your growth plans. If you already have an existing Invoice Finance facility, PMD can benchmark this against what is available in the market and improve on this by either reducing costs or increasing funding, and in many cases both. 

If you are considering invoice finance as a business funding option, get in touch today to see how PMD can help.  

You might like...

Invoice financing: what is it and how does it work? 

September 16, 2022
Invoice finance releases cash tied up in outstanding invoices, allowing the supplier access to money before the customer has paid.  

The benefits of using a business finance broker

November 28, 2022
W look at the key benefits of using a finance broker, and the importance of finding the right type of finance broker who understands your business.