Background

Bank Loan

THE PROS & CONS: INVOICE FINANCE

There are two different versions of invoice finance. These facilities are provided by UK Banks and/or specialist invoice finance companies such as Bibby, Close Bros. or Hitachi Finance.

Firstly, invoice discount where money is advanced against the invoices you generate. As long as the invoices are raised against other businesses which are a good risk, you can draw down the majority of the invoice value in advance of the due date.

 

Secondly, invoice factoring, where you sell the invoice at a discount to an invoice factoring provider who then collects the invoice value directly when it’s due.

Caution! Invoice factoring can interfere with the relationships you have with your customers. Invoice factoring can be expensive when all the costs are taken into consideration – don’t just be attracted by an interest rate.

Furthermore, invoice finance, just like overdrafts, can be difficult to exit from once the company has started using it, therefore it’s important to use these facilities with control and discipline and not become over-reliant on it. Ideally only use invoice finance to pay direct costs and overheads and don’t be tempted to use them for new plant and equipment, vehicles – or dividends!

 

PROS V CONS