Invoice finance is a form of business finance that has been commonplace in Europe and North America for a number of years. Whilst the concept is not new in Australia, it is only in recent times becoming a staple for most businesses.
This form of finance effectively allows businesses to turn unpaid invoices in to cash – which is of particular benefit when operating with debtors on extended (30 days or more) trading terms, or when experiencing a growth phase. In essence, an Invoice Finance provider will provide 80%-90% of the invoice value, and upon receiving payment for the invoice, disperse the remaining 20%-10%, less a discount fee.
There are multiple options when considering invoice finance, such as:
- Disclosed / undisclosed facilities (i.e. will the provider be required to communicate with the debtor)
- Fixed / Selective facilities (a fixed facility has a defined – usually 12 month – duration)
The discount fee that applies is generally related to the risk associated with the business. For example, a labour hire business would be considered less risky than a construction business.
There are options available for most industries (including construction – we do have providers that will fund progress claims); effectively if your business issues invoices (business to business), invoice finance may be an effective working capital solution.
To find out more about how Invoice Finance can work for your business, contact the team at Flexible Capital.