How to Use Invoice Financing to Fund Your Startup

Enness is a leading provider of high-value invoice financing. Enness’ clients include entrepreneurs, business owners, and private businesses looking to borrow large sums against their invoices. Whatever you need an invoice financing facility, however much you want to borrow, Enness will help you to secure the best rates and terms.

Invoice Finance

Invoice-based financing is a specialized type of lending available to businesses that offer credit terms to their customers. Enness can assist your company in obtaining a facility that provides ongoing access to finance in accordance with your fluctuating debtor book position and is secured against unpaid invoices owed to you by your clients.

Invoice-based financing provides your company with short-term flexibility to generate working capital. Companies frequently use an invoice financing facility to:

Assist in resolving short-term cash flow issues
Quickly obtain cash to capitalise on an opportunity, support new contracts, or pay off an urgent debt.
If your company is making a large-ticket investment, such as M&A or reinvestment, this is a proactive measure to budget and manage cash flow.
Early payment discounts should be negotiated with creditors.
Allows for greater financial flexibility while avoiding the rigidity of a traditional overdraft facility.

What Is the Process of Invoice Financing?

Finance-based invoicing works by a lender immediately paying you a portion of your invoices in cash – usually within a couple of working days. As a result, rather than waiting for the standard invoice payment terms, your business can access working capital immediately. Invoicing finance is typically used to pay an invoice by companies with payable terms of 30 days net (or more).

Invoice financing facilities can work in one of two ways, depending on your lender:

Discounting of Invoices

As your company sends new invoices to customers or clients for goods or services rendered, you use a user-friendly online platform to notify your lender. Lenders will then transfer a portion of the invoice to your bank account.

The amount paid to you varies, but it is typically around 85% of the total invoice amount. When your client or customer pays the outstanding invoice, you keep the difference less any interest or fees owed to the lender.

The benefit of this system is that you can keep lending “in-house,” and your clients will be unaware that you are a lender or that you have borrowed money against invoices. Lenders will work to assist you by providing a dedicated team as well as online access to slick platforms that link to your bank account and accounting package; the latter also provides the lender with ongoing information about your trading activity and financial performance.

Invoice Factoring

This method of financing outstanding invoices is known as “Invoice Factoring.” In this case, your lender will essentially buy your open invoices from you. The amount the lender will pay for them will vary depending on your circumstances and the services or products you provide, but it will be a percentage of the outstanding invoice, similar to discounting. The remaining amount owed to you is repaid when your client or customer pays their invoice, less any fees or interest owed to the lender.

While this can be advantageous in that you receive a fixed sum and do not have to make any repayments to your lender, there are some nuances to be aware of.

Because your lender becomes the creditor in this case, your clients will pay your lender directly, and they will be aware that you are financing your debtor book position. Your lender may also contact clients directly to follow up on late payments in accordance with their own policies and credit control procedures.