Invoice Finance or a bank overdraft/loan?

Businesses need funding. Whether it is to survive, maintain or grow, the need for cash in a business to make it tick over or step up a gear is critical.  When a business identifies that it has a need for funding it can sometimes be easy to opt for the traditional port of call – the Bank.  You will know them and be using them for your current account so it is easy to understand why they would be your first choice.  The Bank will always lead with their core products – the bank overdraft or a loan facility both of which will inject funding into your business.

However, it’s so important that you choose the right type of finance for your business and the situation that you are facing.  By choosing the first option available, your business could be missing out on a funding solution that would give it more of an advantage.

What are the benefits of Invoice Finance over a bank overdraft/loan?

Invoice finance offers several benefits over a traditional bank overdraft or loan for businesses.

Improved Cashflow – Invoice Finance provides immediate access to cash by advancing a significant portion – up to 90% - of the value of unpaid invoices.  This allows businesses to bridge cash flow gaps and access funds tied up in outstanding invoices, providing a more consistent and predictable cashflow.

Flexibility - Invoice finance is typically a revolving facility, meaning that as new invoices are generated, businesses can continuously access funding against them. This flexibility aligns with the business's working capital needs and provides a scalable solution as the business grows.

Reduced Reliance on Collateral - Traditional bank overdrafts or loans often require collateral or security, such as property or assets, to secure the funding. Invoice Finance heavily relies on the invoices themselves as collateral. This may reduce or even negate the need for additional collateral and enables businesses to access funding without pledging valuable assets.

Quicker Access to Funding - Invoice Finance often offers faster access to funds compared to traditional bank loans or overdrafts. The approval and funding process can be streamlined, allowing businesses to obtain the necessary funds quickly, sometimes within a few days. This can be particularly beneficial for businesses with urgent cash flow needs.

Flexibility in Creditworthiness - Invoice Finance providers typically consider the creditworthiness of the business's customers rather than solely focusing on the business's credit history. This can be advantageous for businesses with less-established credit profiles or those working with larger, creditworthy customers. Invoice Finance allows businesses to leverage their customers' creditworthiness to secure funding.

Outsourced Credit Control – The Invoice Financier can take on the responsibility of credit control and collections, reducing the administrative burden on the business. They handle tasks such as credit checks, invoice chasing, and debt collection, allowing the business to focus on core operations and save time and resources.

Confidentiality – Invoice Finance can offer the benefit of confidentiality through Invoice Discounting, as the funding arrangement remains undisclosed to customers. This allows businesses to maintain their customer relationships and control the credit management process, without customers knowing that financing is in place.

Business Growth Support - Invoice finance can support business growth by providing access to funds that can be reinvested in the business. With improved cash flow, businesses can take advantage of growth opportunities, invest in new equipment, hire additional staff, or expand into new markets.

With latest statistics revealing that gross lending to SMEs is down by 22% in 2023 on the previous years’ whilst high street banks are facing criticism for pulling back from small business lending, it is no surprise that 59% of SME funding now comes from outside the big banks.

If your business is looking to take on funding, then consider Invoice Finance and find out how it could help your business grow.