Waiting 60 Days for Payments? Invoice Finance Bridges the Gap

Waiting for Payments? Discover How Invoice Finance Bridges the Gap

Waiting 60 Days for Payments? Invoice Finance Bridges the Gap

For UK businesses, maintaining a steady cash flow is essential, yet achieving it can be challenging. One of the most common financial hurdles businesses face is delayed payments from customers. Waiting 30, 60, or even 90 days for payment on invoices can leave businesses cash-strapped, making it difficult to cover operational costs, invest in growth opportunities, or even pay suppliers on time. Invoice finance can help bridge this gap by providing immediate access to funds tied up in outstanding invoices.

This is where invoice finance comes into play. It provides a solution to bridge the gap between issuing an invoice and receiving payment. In this blog post, we’ll dive into how it works, why it’s beneficial, and how it can help your business keep cash flow stable, even when customer payments are slow.

What Is Invoice Finance?

Invoice finance is a financial product designed to help businesses unlock the cash tied up in unpaid invoices. Rather than waiting for clients to pay, businesses can access a significant portion of the invoice value almost immediately—typically between 70% to 90%—from a finance provider.

When the client finally pays the invoice, the finance provider remits the remaining balance minus any fees. This way, businesses don’t have to wait for the full payment term, alleviating cash flow challenges and enabling continued growth.

There are two main types:

Invoice Factoring: With this option, the finance provider advances the invoice amount and takes on the responsibility of collecting payment from the customer. This can be especially helpful for small or medium-sized businesses that don’t have a dedicated collections team.
Invoice Discounting: Here, the business retains responsibility for collecting payment, while the finance provider offers an advance on the invoice. This option is often preferred by larger businesses with in-house credit control teams, as it allows for more discreet financing.

How Invoice Finance Works Step-by-Step

Understanding how invoice finance works can help business owners see how it fits into their cash flow strategy. Here’s a step-by-step breakdown of the typical process:

Issue the Invoice
Once goods or services are delivered, the business issues an invoice to its customer with typical payment terms (e.g., 30 or 60 days).
Apply for Invoice Finance
The business applies for financing with a provider, either factoring or discounting based on its needs.
Receive the Cash Advance
The finance provider advances a percentage of the invoice value—usually between 70% and 90%. This cash is available to the business almost immediately, helping it meet financial obligations without waiting for customer payments.
Customer Pays the Invoice
In the case of factoring, the finance provider collects the payment from the customer directly. For discounting, the business collects payment, which goes through a trust account set up by the finance provider.
Receive the Remainder
Once the invoice is paid in full, the finance provider releases the remaining balance to the business, minus any fees.

By allowing businesses to unlock cash from invoices immediately, this process can dramatically improve cash flow and financial flexibility, helping companies thrive even with extended payment terms.

Top Benefits

Invoice finance offers significant advantages to businesses facing cash flow constraints due to slow-paying customers. Here are some of the top reasons UK businesses rely on this:

1. Improved Cash Flow Stability

Invoice finance alleviates the cash flow issues that arise from delayed payments, making it easier for businesses to cover their day-to-day expenses. With a steady stream of cash from unpaid invoices, businesses can:

Pay suppliers on time, which often improves supplier relationships and may even lead to better terms.
Cover payroll, rent, utilities, and other operational costs without interruption.
Avoid taking out high-interest loans or overdrafts to bridge short-term cash gaps.

2. Faster Access to Working Capital

Unlike traditional loans, which can take weeks or even months to approve, invoice finance is quick and accessible. Many providers are equipped to release funds within 24 hours after approval, providing businesses with much-needed working capital.

With this, businesses can rely on immediate cash flow to:

Respond to seasonal demand or take on larger orders without financial strain.
Invest in new equipment, staff, or other resources to fuel growth.
Avoid the cash constraints that can inhibit strategic planning and expansion.

3. Flexibility Without Adding Debt

Invoice finance is not a traditional loan, so it doesn’t add long-term debt to the business’s balance sheet. Instead, it’s simply an advance on the money the business is already owed. This structure enables businesses to access funds without accumulating additional debt, improving financial health and reducing reliance on costly borrowing.

4. Streamlined Collection Process with Invoice Factoring

For smaller businesses or those with limited credit control capabilities, invoice factoring can simplify the collections process. The finance provider assumes responsibility for chasing and collecting payments, freeing up time and resources for the business to focus on core operations. Additionally, this can improve collection rates, as finance providers typically have expertise in credit management.

5. Greater Ability to Plan for Growth

For businesses with a steady flow of invoices, invoice finance allows more accurate forecasting. With the assurance of predictable cash flow, companies can better plan for:

Expansion into new markets.
Product development.
Scaling operations or hiring more staff.
Securing larger contracts or long-term projects.

Knowing that cash flow will be stable despite varying payment terms from clients makes it easier for businesses to make strategic growth decisions confidently.

Is Invoice Finance Right for Your Business?

While offering many benefits, invoice finance may not be the right fit for every business. It works best for companies with consistent invoicing to creditworthy customers. This solution can be especially useful if:

Your business has a longer cash conversion cycle, meaning it takes a while for the business to receive payment after delivering goods or services.
You frequently encounter cash flow issues due to slow-paying clients.
Your business needs an immediate cash boost to seize growth opportunities, pay suppliers, or manage operating costs.

If you’re unsure whether invoice finance is the right fit, consider consulting with an experienced finance broker, like MacManus Asset Finance, who can guide you on the best finance solutions for your unique circumstances.

Types of Businesses That Benefit Most from Invoice Finance

Certain businesses benefit more from invoice finance due to their operations and billing cycles. Industries that commonly use this solution include:

Manufacturing and Wholesale: These sectors often need substantial working capital to purchase materials and manage production, so waiting on customer payments can significantly disrupt operations.
Transport and Logistics: In a sector with high operating costs, invoice finance provides the cash flow to cover expenses like fuel, payroll, and vehicle maintenance.
Staffing and Recruitment: Companies in these fields typically need to pay workers weekly or biweekly but may face a 30-60 day wait for client payment.
Professional Services: Industries such as accounting, consulting, and IT services often work with larger corporate clients who pay on extended terms, making invoice finance an excellent solution for bridging cash flow gaps.

Choosing the Right Provider

When selecting an invoice finance provider, it’s essential to consider several factors to ensure you’re getting the best possible terms and service. Here are some aspects to evaluate:

Fees and Charges: Different providers have varying fee structures, so it’s important to understand the costs involved and ensure they align with your budget.
Advance Rates: Most providers offer advances between 70% and 90% of the invoice value. Make sure the rate is sufficient to meet your business needs.
Provider Reputation: A reputable provider can make a significant difference, especially if they’re responsible for client interactions under an invoice factoring arrangement.
Level of Service: Consider how much support the provider offers, including access to credit control services, customer support, and regular reporting.

Conclusion: The Power of Invoice Finance in Closing Cash Flow Gaps

When your business can’t afford to wait 60 days or more for customer payments, invoice finance can bridge the gap and provide the cash flow you need to thrive. From covering operating expenses and seizing growth opportunities to managing seasonal fluctuations and reducing debt, the benefits of invoice finance are substantial.

If you’re ready to explore how invoice finance can improve cash flow stability and empower your business growth, MacManus Asset Finance is here to help. Our team of finance experts has extensive experience helping UK businesses secure tailored financing solutions. We’ll work with you to find the right invoice finance product and provider to keep your business on track.