What is Invoice Finance
Easy to understand information about Invoice Finance
First of all it’s worth explaining – for those who are unsure – exactly what is meant by invoice finance.
In short, when you raise an invoice to your customer you have to wait 30, 60, 90 days or more to be paid. When you enter into an agreement with an invoice finance company they will allow you to receive up to 80% of that invoice the very next day, and the remaining 20% when the customer pays.
When you invoice your customer for goods or services you have supplied you usually add terms to that invoice which relate to when you expect payment of that invoice.
The most common are 30 days from date of invoice, 30 days nett or 60 days nett.
30 days nett means that whatever time of the month you date the invoice your customer has until the end of the following month to pay you.
So if you invoice your customer on the 1st of April on terms of 30 days nett your customer has until 31st May to pay you.
If you dated the invoice 31st March then your customer has until 30th April to pay.
So it’s worth checking that any goods or services supplied in the month are invoiced that month – not early in the next month just because that’s when you got round to invoicing!
So, you invoice your customer and have to wait for payment – 30, 60, 90 days – however long your customer can delay paying you.
The benefit of invoice finance is that you obtain another overdraft from a different bank (or sometimes part of the same bank) which fluctuates directly in proportion to how much you are owed.
You’re availability is typically between 70 and 85% of the invoice value and is available the day after you invoice the customer.