Invoice Finance simply explained by Swoop

Is your business being held back by late payments of invoices? Invoice finance could be the answer. 

What is invoice finance?

Invoice finance is a way of borrowing money using your unpaid invoices. If you’ve issued invoices to your customers and they haven’t paid them yet, even if they’re not due to pay them any time soon, you could unlock the value of those invoices and have the money in your account to spend fast.

It’s like a business loan, but instead of using a physical asset like a building as security, invoice finance uses your accounts receivable.

How does invoice finance work?

Unpaid invoices represent money that will be paid to you. You might offer your customers payment terms of 30, 60, 90 or even 120 days. Assuming your customers pay on time, the value of your sales is still locked in for those 30, 60, 90 or 120 days.

With invoice finance in place, rather than waiting for your invoices to be paid, a lender will advance you most of the value immediately – so you get paid faster for completed work. A lender will typically advance up to 95% of the value of your invoices.

The money could be in your account as soon as 24 hours later, but it isn’t uncommon to face a wait of up to a week. Either way, you could have the much-needed cash in your account far quicker than you would if you were still waiting on the invoice payment.

Why use invoice finance?

Invoice finance is all about freeing up your cash flow and opening up your finance options. 

You could be looking to buy new equipment, attend training or invest in innovation that could drive your business forward. Instead of letting your business be held back for months, waiting for the money to make your plans happen, you can have access to that money sooner.

Invoice finance may also allow you to pay your suppliers or premises costs on time, rather than having to negotiate extensions on paying those bills because you’re still waiting on payment. This can help boost your relationship with your suppliers and could save you money on any interest or penalty you may have had to pay for late payment.

Who can use invoice finance? 

Invoice finance is suitable for most businesses with a revenue of over in excess of CA$51,000. 

How much will invoice finance cost?

To set up invoice finance, you will need to pay the lender a percentage of the value of the invoices you’re borrowing against, plus a setup fee. 

There are a range of factors that will decide how high a percentage of the invoice value you will need to pay. These include the lender’s conditions which will vary depending on which lender you choose, your business profile, and the length of the loan. Swoop will help guide you through the process. If you’re considering using invoice finance to support your business, sign up for a free Swoop account and our team of experts can help you find the right lender for your business needs. We can also provide insight into a range of other finance options and ways you could be saving money on your day to day business costs.