Businesses all over the UK are struggling to get their invoices paid on time. There are solutions out there, but which is going to do the job reliably? In this blog we explain the difference between invoice finance and invoice protection, so you can figure out which will help your small business to get paid faster.
Invoice finance is a business finance product based around the value of your invoices. It’s designed to get cash flow moving when it would usually be stuck.
When you raise an invoice, you would typically wait for it to be paid. Instead, you can use invoice finance to raise the amount of the invoice in advance of the payment date.
How does it work?
Your business completes work for a client or customer and raises the invoice as normal. The invoice will then be passed onto the invoice finance company, and they’ll agree to pay you a percentage of the invoice amount upfront - it varies from provider to provider.
Types of invoice finance
Within invoice finance there are two main finance products with two different functions.
A percentage of your current unpaid invoices can be used as collateral for borrowing money.
The invoice discounting company will decide how much working capital you can borrow based on how much cash is expected to come into your business when the invoices are paid.
With this method, the invoice remains your responsibility to collect and your customer will not know you're using a finance facility – once the invoice is paid, you hand back that portion of the loan (plus fees).
Your business sells its unpaid invoices to an invoice factoring provider for a percentage of its total value. They then take care of chasing it for you and collecting the debt. Basically, you’re handing over the credit control process to a third party in exchange for getting most of your invoice paid upfront. While this may seem like a quick and easy solution to meet your cash flow challenges and bridge any gaps, it could end up being a costly solution. Additionally, as the customer will usually settle their invoice directly with the factoring company (there are some variations), your customers will likely be aware of the fact that you are factoring.
Who would benefit from invoice finance?
Invoice finance can be a good option for businesses that routinely find their cash is tied up in invoices that haven’t been paid yet. It’s a frustrating place to be, and invoice discounting or factoring can make cash flow less of a worry.
Invoice finance is designed to be a short to medium term solution though, so it’s not ideal to keep relying on it month on month. If you’re in the 40% of SMEs routinely confronted with payment issues, you definitely need a better, longer term solution.
The average UK SME is owed nearly £25,000 by clients and customers. With thousands missing from their bank account that they’ve already earned, they can find themselves struggling to pay for essentials and invest in future projects.
Invoice Protection is a way to stop the uncertainty of late invoice and, worst case, non-payment of invoice.
How does it work?
Unlike invoice finance, Invoice Protection is a type of insurance that protects your business in the event your customer fails to pay or defaults - and it doesn’t involve borrowing any cash, so perfect for smaller businesses.
Protect your invoices with Futrli & Hokodo
Futrli’s partnership with Hokodo means that you’ll always get paid, even if your customer doesn’t pay you. You can now check your customers’ credit scores and protect the cash coming into your business in seconds - right from within Flow.
- Protection is easy. Just a few clicks and no forms or waiting around.
- Select the invoices you’d like to protect, our partners Hokodo with provide you with an instant quote.
- Get at least 90% of your invoice paid no matter what.
- You can protect one or multiple invoices.
- There’s no fixed fee, you just pay for what you use.
- Hokodo will take care of debt collection for you.
Find out exactly how you can protect your cash flow in Invoice Protection: The easy way to guarantee cash flow.
Invoice protection = peace of mind. Get protected with Futrli + Hokodo.