Invoice Finance vs Business Credit Cards – all you need to know

difference between invoice finance and business credit cardsThere are many forms of lending for businesses, Invoice finance and credit cards are one of the most popular, As lenders start to withdraw from the market, we look at both types of borrowing and ascertain with financial option will work for you.  Both these have pros and cons for any SME in 2021.

High street banks are continuing to refuse many SMEs finance, which is leading to business owners seeking out other funding options. These funding routes include Invoice Finance (both invoice factoring and invoice discounting) and credit cards, both of which can help to fulfil the needs of a company.

We will now walk you through the advantages and disadvantages to both Invoice Finance options and credit cards, so that you can compare them and see which one is a better fit for your venture.

Pros and Cons: Invoice Finance and Credit Cards

There are a number of of pros and cons that ascertain to invoice finance and credit cards, we take a look at their advantages vs disadvantages of these types of finance.

Advantages of Invoice Finance

Here are the advantages offered by Invoice Finance funding solutions:

Poor credit history isn’t a problem

If you apply for a short-term business loan, the chances are you will have a tough time if your credit history isn’t up to scratch. In some cases, this can lead it to becoming impossible for you to gain finance. If this is the case for you, you can turn to Invoice Finance as a solution that will help you to improve cash flow and keep your company running smoothly.

Longer payment terms 

Invoice Finance awards businesses with longer payment terms or late payment issues a fast injection of funds. As 100% of the value of your outstanding invoices will normally become available to you right away, you can get hold of the cash you are owed without having to wait around for customers and clients that have a habit of paying you late.

Growth support

Invoice Finance funding methods are a great supporter of growth for any small to medium sized business. This is because when new invoices are received, more funding is made available to you. This is a highly adaptable form of finance that changes along with your business: when your sales grow, so will the amount of cash that is released through unpaid invoices.

More cash means higher opportunity for growth throughout your business venture, and you will normally receive funding within 24 hours after being accepted. When you borrow money here, it will be cash that you don’t have access to due to either late or failed customer payment, meaning this is a form of finance that can get your business back on track very quickly.

Disadvantages of Invoice Finance

Here at the potential disadvantages attached to Invoice Finance:

You need to be committed 

Previously, small business ventures have veered away from this form of funding facility as they are required to hand over a large portion of their debtor book to financing companies. Although, this problem has been largely answered by providers in the form of new products, such as selective invoice finance.

Increased administration

When compared directly with a credit card, Invoice Finance requires a much higher amount of in-house administration. Therefore, if you fail to sign the right agreement, you may run into future issues within this area.

Advantages of business credit cards

Here is a quick rundown of the key advantages offered by business credit cards:

They are convenient 

Credit cards are a great financial tool for start-up businesses that are looking to get hold of funds quickly. The sign-up process is very fast, and you will normally have a highly decent chance of qualifying. Credit cards award customers with a revolving credit facility; meaning the business can borrow up to the limit, pay it off and then have access to the funds once again.

This all means that paying for goods and services becomes extremely simple, staff work-related spending gets easier, cash flow and credit ratings can be improved, all without any need for collateral.

Can be used as an interest free loan (sort of)

If you use a credit card in the correct way, as a business owner you will be able to manage your finances efficiently. Remember to take full advantage of any interest-free periods and balance transfer offers, which tend to operate like an interest-free loan.

Disadvantages of business credit cards

Now you know about the advantages, we will talk you through the main disadvantages to business credit cards:

Low upper limits

Credit cards are handy when it comes to covering smaller costs within your business. For example, if you want to spend less than £5000 on something that will help you to grow, credit cards can be a useful solution. However, having a credit limit like this can be problematic if you end up needing to make an investment higher than the agreed amount.

You should also be aware that business credit card providers will always check the business owner’s personal credit score, which can affect the outcome of your application. This occasionally puts an end to people’s chances of getting hold of one. 

High interest rates

Credit cards are unsecured and therefore, usually have high interest fees attached to them. These rates are always transparent, but you will still need to be careful when using a credit card. You can end up in a never-ending cycle of debt if you start spending too much, which can be torture to get out of. 

Could we be the answer you are searching for? 

For guidance on what would be the best option for you to utilise, you should get in touch with a member of our team today and receive all the details you require. You can contact us here at Invoice Funding by filling out our ‘How can we help?’ form today.

To apply for Invoice Funding of any kind, click here. You can boost your business’ cash flow today by allowing us to help you.

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.

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