Invoice factoring for new business

invoice factoring for new businessesInvoice Factoring for new business is a perfect funding solution if you are looking at hitting the ground running. This type of finance releases a significant amount of money tied up in your debtor ledger through unpaid invoices.

This problem only becomes greater the faster your business grows, it will also stump future growth. This is where factoring for new business can help with overcoming cashflow issues.

We truly believe that new businesses are one of the most important sector for the future growth of the UK economy. New businesses have been the back bone of the UK economy since Covid, with 2023 expected to see a rise in people setting up and opening new businesses.

What is invoice factoring for new businesses?

Invoice factoring for new businesses 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.

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.

As a new business does not have a credit rating or any type of financial history, this in not a problem with factoring for new businesses as the risk is placed on your clients ability to pay the invoice.

Why new businesses should consider invoice finance

Asset based lending is a perfect fit for any business that offers terms to another 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 new businesses:

New businesses tends to be volatile due to the nature of the unknown, the types of finance available for new businesses 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 new businesses 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 may not be suited to new businesses as it requires a turnover of about £500,000, it is used when a business does not wish for their client to know they are using a third party lender.

This type of finance is usually cheaper than factoring as there is no credit collection process included within the facility.

Invoice factoring

Invoice factoring for new business 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.

Factoring works by allowing 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 new businesses that have an expected turnover of about £100,000 per year, it ensures that your clients settles their outstanding bills in a timely manner. One advantage with new business factoring is the lender will chase up all your outstanding invoices with your clients.

Spot factoring

Spot factoring for business 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 new businesses 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 factoring a new business

  • 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 new business factoring work?

For any business cash is needed to support the new business on a daily basis, factoring works by bridging the gap between getting paid by your clients and paying suppliers, staff, 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 factoring companies charge?

Factoring companies charge a new business 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 finance?

Eligibility for finance is subject to status but not as strict as you may think, if the following apply to you:

  • You are registered in the UK

  • Expected turnover £100,000

  • Issue invoices.

  • Must trade with other businesses on credit terms

Why should you work with us

We are passionate about helping new 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.

Business Finance specialist at Invoice funding | + posts

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.

Fund Your Business

Speed up your cash-flow today. Forget issues caused by slow-paying customers