Loans against Invoices or Invoice Discounting is when you sell any unpaid invoices to a third party for a cash lump sum. The third party can either be independent, or part of a financial institution or bank.
As these invoices show your future income, it means that you are not required to have years of favourable accounts or expensive assets in order to secure additional cash for your business and money can be raised quickly.
How does invoice financing work?
There are two different kinds of invoice financing – factoring and invoice discounting. It really depends on your business as to what is best for you.
Invoice factoring: With factoring, an invoice financier will effectively buy the debts owed to you by your customers, giving you a percentage of the cost to you upfront. They will also usually assume responsibility for managing the sales ledger and for collecting any money your customers owe you.