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But Which To Choose?


A short-term form of debt to help cover the costs of generating sales, prior to receipt of payment for those sales. Normally used when selling on trade credit and to help pay direct costs of production (ingredients, wages, packaging etc.) as well as fixed costs (rent, rates, insurance etc).

Generally agreed by banks for 12 month periods subject to annual review, to cover the peaks and troughs in the business cash flow cycle, but can also be arranged for one-off, much shorter periods for more specific requirements.

Read the pros and cons here.


A trade or stock loan is finance arranged with a bank, specialist lender, or can even be negotiated with a customer or supplier in some cases.

These loans are most appropriate for a bigger, seasonal campaign e.g. Christmas, where a large stock build is required months in advance.

These loans are repayable on an agreed date or event e.g. 30 days after raising an invoice, or in the case of Christmas stock – 27th December!

Read the pros and cons here.


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!

Read the pros and cons here.


This document is intended to be an aide-mémoire to help you consider different forms of finance and which ones might be appropriate for your business; it is not a comprehensive guide to all forms of finance. There could be different tax and legal implications associated with different forms of finance. Professional tax and legal advice should be sought to prepare for these different forms of finance.

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