For start-up businesses, find the right funding is essential to ensure success. Getting off the ground when you launch needs to be supported by steady cash flow. One way to help with that is invoice finance.

While this cash flow scheme can be useful for companies of all sizes, it is even more so beneficial for smaller businesses. 

Invoice finance solves some of the critical issues they face when starting out, or when growing as an effective scalable solution.

What is invoice finance?

Financing invoices allows businesses to release up to 90% of the value of invoices within 24 hours of their issue. Effectively, this helps businesses overcome the cash flow gap that’s created by trading on credit terms, providing the cash to fulfill new orders and meet day-to-day commitments.

So, what types of invoice finance are there?

Invoice Discounting

The difference between discounting and factoring is that in the instance of invoice discounting, your business retains the responsibility of managing your sales ledger.

This can be more beneficial for your business if you want to keep hold of more personal contact with your customers who you invoice. Which is good if you want to nurture strong relationships. However, this service is usually only available for businesses with a turnover of more than £1 million. 

Invoice Factoring

This form of finance for invoicing also provides companies with dedicated sales ledger management as well as the release of the invoice value. Essentially, this releases the burden of chasing customers’ invoices and bring crucial expertise to a startup.

Spot Factoring

Spot factoring is slightly different from the previous forms of invoice financing. It allows you to access up yo 90% of the value of individual invoices as opposed to the entire sales ledger. The advantage of this is that you won’t be tied into a long term funding facility. Therefore, you’ll have more flexibility and you can still boost cash flow where you need it.

Why is invoice finance a good choice for start-up businesses?

Here are some of the main reasons that financing invoices can be beneficial for start-up businesses.

1. Scalability – Other funding solutions such as loans and overdrafts don’t offer the same amount of scalability that invoice finance does. The main difference is that financing invoices will grow alongside your sales ledger.

1. Opportunity – when using invoice finance, the released cash you will acquire gives you the opportunity to invest in many different areas of your business. You could afford to take on new clients, hire more staff or develop new solutions for your services. 

1. Cash flow – You’ll have more funds to pay for day to day operations and be able to invest in growth as your cash flow improves and you have more liquid cash.

Is my start-up business eligible?

For your business to qualify for business finance, your business will need to offer credit terms to customers and sell to other businesses. Additionally, you’ll also need to raise invoices so that an invoice financing team can use them as collateral against to secure funding.

New companies often use invoice finance because they may not have the history behind them to secure more traditional forms of funding like bank loans. So, start-up businesses only have to depend on the quality of their outstanding invoices and the creditworthiness of their debtors.