Invoice factoring for freelancers

Invoice finance for freelancersInvoice Factoring for freelancers is a perfect funding solution if you are running a growing business with a significant amount of money tied up in your debtor ledger through unpaid invoices.

The problem becoming greater and holding you back the faster your business grows? This is where factoring for freelancers can help with overcoming cashflow issues.

We truly believe that the freelancer sector is one of the most important sector for the future growth of the UK economy. With new projects coming daily, the working world has changed since Covid.

Common freelance positions in 2023 are in content writing, web design, software development and graphic design. Others include accounting and finance, customer service and administrative.

What is invoice factoring for freelancers?

Invoice factoring for freelancers is a type of finance that ensures you do not have to wait 30, 60, or 90 days to get paid, funds are available once you have issued an invoice to your client.

This type of financing that allows businesses to sell their accounts receivable (invoices) to a third party at a discount. This enables businesses to get cash up front, rather than waiting for their customers to pay. For freelancers, invoice factoring can be a helpful way to manage cash flow and ensure that you always have money on hand to cover expenses.

When you factor your invoices, you essentially sell them to the factor at a reduced rate. In exchange, the factor provides you with an advance on the invoice, which you can then use to cover business expenses.

The main benefit of invoice factoring is that it gives you access to cash that you would otherwise have to wait for. This can be especially helpful if you have customers who take a long time to pay their invoices.

With invoice factoring, you can continue to operate your business without worrying about whether or not you will have enough money on hand to cover your expenses.

It can be frustrating that you have carried out the work for your client only to wait months for them to settle the invoice, this can put pressure on your business potentially making it difficult to meet high day-to-day running costs and the quick turnaround times required in this industry.

Freelancer meaning

A freelancer is a person who works independently, rather than being employed by a company. Freelancers typically work in a wide range of fields, including writing, graphic design, web development, and engineering. While some freelancers are self-employed, others work for companies on a contract basis.

The term “freelancer” is thought to have originated in the medieval period, when knights were hired by nobles to fight in wars. Today, freelancers are often hired by businesses to complete specific tasks or projects. In many cases, businesses prefer to hire freelancers because they can be more cost-effective than hiring full-time employees.

For example, if a business only needs a graphic designer for one month, it would make more sense to hire a freelancer than to add another full-time employee to its payroll. Freelancers also offer businesses flexibility, as they can be hired on an as-needed basis.

Freelance workers are sometimes represented by a limited company or a temporary agency that resells the freelancer skills and labour to its clients, a freelancer also others work independently or use professional associations or websites to get work.

Why freelancers should consider invoice finance

Invoice finance is an essential financial option for any freelancer type business that offers services to businesses on credit terms.

We know the importance of making sure that you have cash available to pay sub contractors or just to ensure that you have ready available cash in your bank that can be used to cover your day to day expenses.

By using an asset based lending product such as invoice finance within your business could be the answer for a positive cash flow within the business. We also understand that your workers and suppliers will need paying much quicker than the standard 30 days your clients will take to pay you, this can potentially causing cash-flow issues.

Asset based lending is a perfect fit for any business, it can fill the cash flow hole by advancing up to 95% of the value of the outstanding account once it has been issued to the client. Once you have completed the job and the invoice has been issues to the client, the factor provides the balance of the statement of charges, minus fees.

There is no longer a need for freelancers to have to wait to be paid 30, 60 or even 90-day after you have issued an invoice, this is where our finance will support your business. You can finally sleep at night and no longer worry about cash flow issues.

Types of invoice finance for the freelance sector:

The freelancer sector tends to be volatile due to the nature of the industry, the types of finance available for freelancers will vary on a number of factors. To help you work out which type of finance will suit your business, here is a brief guide to the three main options:

Invoice discounting

Invoice discounting for freelancers is a confidential finance facility when a company’s unpaid invoices are used as collateral for a loan. Invoice discounting companies enable businesses to leverage the value of their sales ledger.

With an invoice discounting company, when sending out invoices to customers a proportion of the total amount becomes available from the lender, which provides your business with a source of working capital throughout the month while you wait for your client to pay their bill.

The benefit of invoice discounting is you maintain responsibility for your sales ledger as well as any outstanding amounts chased and invoice processing. The main difference between this method and invoice factoring is that your customer is not aware that you have taken on cashflow finance. If you prefer to keep the financial arrangement confidential from your customers then discounting may be the right product for you.

You no longer have to wait up to 120 days to receive settlement for your services, and you remain in charge of your own credit control processes, meaning that you continue to chase late payments and therefore your customers are not made aware of any third party involvement.

This type of finance is suited to freelancers that have a larger turnover of about £500,000 and do not wish for their client to know they are using a third party lender.

Invoice factoring

Invoice factoring for freelancers is when a business sells its sales ledger to a third-party company. It’s a form of factoring finance and will give your business an effective way to improve its cashflow position.

How does invoice factoring work, the lender will provide the credit control service to recover payment of the unpaid invoice.

Factoring companies allow you to release cash from your unpaid invoices quicker than having to wait between 30 to 90 days – and sometimes up to 120 days – for your customers to pay you.

The invoice factoring provider we handle credit control on your behalf, allowing you to concentrate on other areas of the business instead of chasing up late payments.

This type of finance is well suited for freelancers that have a turnover of about £100,000 per year, it ensures that your clients settles their outstanding bills in a timely manner. One advantage with freelancer factoring is the lender will chase up all your outstanding invoices with your clients.

Spot factoring

Spot factoring for freelancers is a way to access funds by selling unpaid sales debts to a 3rd party, a spot factoring company, on a one off basis in order to receive payment quicker.

The business will agree rates and fees with a spot factoring company and then decide which account it wants to assign to them. The spot factoring company, once your bill for services that have been completed is verified, will advance a proportion of its value, usually around 70-85%, to the business.

The spot factoring company will then chase up the amount from the client and once paid to them in full will reimburse the business with the outstanding balance minus the agreed fees.

Idea for freelancers that have a number of clients, but only wish to factor the slower paying clients. This ensures that there is no longer a need for the odd one or two slow paying clients to drag your cashflow down while your quickest paying clients support your business.

Benefits of freelancer factoring

  • Cash released in 24 hours after invoices are raised
  • Receive up to 95% of the invoice amount
  • Credit control can be fully managed or confidentially kept in-house
  • Improves cash flow for your business
  • Negotiate better terms with your suppliers
  • Bad Debt Protection can be added to protect against non-payments

It allows you to release funds against the value of invoices within 24 hours of their issue. This means that, rather than wait for your customers or clients to pay, you gain immediate access to cash that can be used to keep the business running as usual, or to grow your business with new clients and contracts.

When it comes to finding the right type of invoice finance for your business, you may find either invoice factoring or invoice discounting provide a better fit.

With invoice factoring the funder will additionally manage your sales ledger on your behalf, with their credit management resource and expertise reducing in-house overheads and improving collection times in general.

How does freelancer factoring work?

For any business cash is needed to support the business on a daily basis, freelancer invoice factoring works by bridging the gap between getting paid by your clients and paying suppliers, sub contractors and merchants.

  • You supply your services or goods to your customers.
  • Send your customer a request for payment and send a copy to the finance company or upload to the online portal.
  • The lender will advance up to 75% of the outstanding amount.
  • Your customer settles the amount in full.
  • The payment clears and we give you the remaining 25% balance minus the finance fee.

How much do freelancer factoring companies charge?

Freelancer factoring companies charge in accordance to a number of different factors, so their factoring rates and costs are unique to each client using a variable fee structure.

In most cases some factoring companies will offer a flat fee structure, their total cost will be primarily based on two thing, the discount/factor rate that they offer you and the second the length of factoring period.

Who is eligible for freelancer finance?

Eligibility for freelancer finance is subject to status but not as strict as you may think, even start-up freelance businesses can apply.

Should the following apply to you:

  • You are registered in the UK

  • Minimum turnover £100,000

  • Issue invoices.

Why should you work with us

We are passionate about helping businesses in the UK, grow and sustain that growth through carefully selected funding solutions and financial services offerings.

As a specialists broker in all things funding we are sure we can find a facility that works for you and your business, to apply for finance the process is quick and easy, simply complete the online enquiry. If you prefer a call back please feel free to get in touch on the number above.

Lee Jones profile picture
Business Finance specialist at Invoice funding

Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.

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