10th March 2022

Invoice finance explained

Invoice financing is a powerful tool that can help businesses put additional cash in their bank accounts. Although we know we’re somewhat biased, we genuinely believe that there is real value to invoice financing when it’s used effectively. It’s a key tool to supporting businesses that need upfront cash or can’t access more traditional funding options.

In our CEO, Ant Persse’s, words, invoice financing can be a way “to provide the simplest and most convenient way for businesses to get paid sooner – unlocking the cash that’ll enable them to change the world.”

If that sounds like something you’re interested in, here’s everything you need to know about invoice financing.

What is invoice financing?

Invoice financing is where you, as a business, sell your unpaid invoices to a specialist company who’ll buy them off you and advance you the cash (minus their fee).

Essentially, it’s a way of unlocking cash trapped in unpaid invoices, and means that you can access the cash you’re owed without waiting for your customer to pay up.

How does it work?

For Optimum Finance customers, invoice finance looks something like this:

  • You send your invoices to your customers as normal
  • We advance you up to 90% of the total amount you’re owed, straight to your bank account
  • When your customer pays, we pay you the remaining 10% (less our fee)

There are two main types of invoice financing. Invoice factoring is where the company you choose gets their credit controllers to chase your payments for you, giving you more time to focus on running your business. If you’ve already got a finance team, there’s the option of invoice discounting – which is where a company will still supply your cash up front but leave the customer interactions up to you.

What impact can it have?

The biggest impact that invoice financing can have is that your business plans don’t have to be put on hold while you’re waiting for your customers to pay you. At Optimum, we’ve worked hard over the last few years to make things as slick and efficient as possible – using tech to make things even more straightforward.

It’s no secret that cash is like oxygen to SMEs, and managing cashflow effectively can make or break a small business – whether you’re just starting out, have significant growth ambitions, or are just trying to keep the lights on.

Waiting for customers to pay you for work that you’ve already completed can put a real strain on your cashflow, and cause problems with buying critical supplies, developing your products, and paying your bills or team. Without intervention, a negative cashflow just isn’t sustainable.

That’s where invoice financing comes in.

Living the benefits

One of our recent clients is a great example of how invoice financing can provide a vital cash injection when your business needs it most.

Anze, a reusable surgical gown manufacturer that we worked with recently, needed cash in their bank account in order to buy raw materials to make their products. Having had bad experiences with banks in the past, they turned to invoice financing knowing that their steady flow of existing orders already held the cash they needed. The cash we were able to provide meant Anze could go and buy the raw materials they needed to get production rolling the same day, collecting them the day afterwards.

During the pandemic, when demand for PPE grew exponentially and the cost of the raw materials that Anze needed rose astronomically. But, because they were able to access cash through their invoices, finding the money was never a problem. And as their order book grew and more invoices were sent out, so did the amount of cash they could access.

Over time, as production continued, Anze supplied vital PPE to the NHS and keyworkers who needed it most, and they could confidently take on more and bigger orders – knowing that their cashflow was something they wouldn’t have to worry about. Thanks to invoice financing, they had a healthy cash flow and were able to contribute to supporting the NHS when it really mattered.

We know that SMEs are the lifeblood of any economy and are passionate about playing our part in supporting them. Working with customers like this is what gets us at Optimum up in the morning – and it makes Ant’s vision of helping SMEs to change the world ring even more true.

At Optimum Finance, we utilise innovative technology to offer a range of flexible funding solutions, which grow alongside your business. Get an instant quote for the amount of funding you could access by entering your annual turnover into our finance calculator. Products include invoice discounting and factoring that can boost your cashflow and give you access to a dedicated credit control team.

Email or call us to speak to our experienced team of experts and find out how invoice finance could help your business. We pride ourselves on getting things done quickly and providing access to cash within 24 hours of approval. We are passionate about finding solutions and delivering to clients’ needs.