Weds 23rd October 2024
Cashflow is a constant concern for most small businesses, yet few consider the use of invoice financing. Chris Falby of Partnership Invoice Finance, based in Paddock Wood, joined the group to explain what invoice financing is, and when businesses might benefit form it.
Invoice financing is simply the passing of a debt in return for payment of a percentage of that debt (typically around 80%). The practice has been around for approximately 4,000 years, originating in Mesopotamia where money was advanced against the delivery and payment of grain shipped abroad.
Invoice financing can be a useful way for new businesses to raise funds without needing to resort to business loans. The nature of invoice financing means it scales up and down with the business turnover, typically being more flexible than fixed loan repayments.
There are essentially two types of invoice financing…
- Discounting – prepayment is made against invoices, but ledger management responsibilities do not shift.
- Factoring – Again prepayment is made, but the invoice finance company takes on credit control responsibilities.
Partnership Invoice Finance look to build close relationships with their customers, and have an average engagement period of 7 years. The typical customer will be in an industry where long payment terms are the norm, such as
- Recruitment
- Distribution
- Engineering
- Manufacturing