Invoice Finance for Startups
Starting a new business is exciting, but managing cash flow can be one of the biggest challenges you face.
Many startups secure new customers and win contracts quickly, only to discover they have to wait 30, 60 or even 90 days to get paid. Meanwhile, wages, suppliers, fuel costs and HMRC payments still need to be covered.
Unfortunately, accessing traditional business finance can be difficult when you’re a new company. Most lenders want to see a trading history before offering loans, often requiring at least six months of trading and sometimes 12 months or more.
This is where invoice finance for startups can help.
Because funding is based on completed work and issued invoices, many startup businesses can access invoice finance much earlier than other forms of business funding.
What Is Invoice Finance for Startups?
Invoice discounting is designed to help companies that work on a B2B basis (business to business) release cash that is tied up in unpaid invoices – often within 24 hours.
Invoice finance allows a business to release cash from unpaid customer invoices rather than waiting for customers to pay.
Once you have completed the work and issued an invoice, an invoice finance provider can advance a large percentage of the invoice value, giving you access to working capital almost immediately.
For startup businesses, this can help bridge the gap between invoicing customers and receiving payment.
Unlike many traditional business loans, invoice finance providers place significant importance on the quality of your customers, as they are ultimately the ones responsible for paying the invoice.
How Does Invoice Finance for Startups Work?
Most startups are initially offered a factoring facility.
With factoring, the invoice finance provider helps manage collections and credit control. This provides additional reassurance to the lender and can reduce administration for a growing business.
As part of the application process, lenders will usually:
- Review your industry sector.
- Assess the businesses you supply.
- Request examples of your paperwork, such as orders, delivery notes, sign-off sheets and invoices.
- Discuss your projected sales turnover.
- Agree an initial funding limit based on your expected trading levels.
It is important to provide realistic growth forecasts. Your facility can usually be reviewed and increased as your business grows.
Once your facility is approved, you will normally be assigned a dedicated account manager who will help ensure everything runs smoothly and provide support as your business develops.
Benefits of Invoice Finance for Startups
There are several reasons why invoice finance has become a popular funding option for new businesses.
Improved Cash Flow
You can access cash tied up in unpaid invoices, helping you meet everyday business expenses such as wages, supplier costs, VAT and other operational payments.
Funding That Grows With Your Business
As your turnover increases, your funding facility can often increase too. This means your available working capital can grow alongside your business.
More Accessible Than Traditional Lending
Many startups struggle to obtain bank loans due to limited trading history. Invoice finance can often be arranged much earlier because funding is linked to invoices that have already been issued.
Bad Debt Protection
Many providers offer debtor protection as part of the facility.
This means that if an approved customer becomes insolvent, you may be protected against some or all of the resulting bad debt, providing additional peace of mind.
How to Improve Your Chances of Getting Invoice Finance
Use Accounting Software
Cloud accounting software such as Xero, Sage and QuickBooks can make the process much simpler.
Many invoice finance providers can connect directly to these systems, reducing administration and providing greater visibility of your sales ledger.
Credit Check New Customers
Before supplying a new customer, carry out a credit check.
A company may have traded for many years, but that does not automatically mean it is financially secure. Services such as Experian, Creditsafe and Red Flag Alert can help you assess customer creditworthiness and monitor any changes.
Keep Clear Records
Good record keeping is essential.
If an order is placed by phone, confirm it by email. Ensure every order has a unique reference number and that delivery notes, sign-off documents and invoices all match.
A clear paper trail can help prevent disputes and give lenders confidence in your business processes.
Stay on Top of Credit Control
Good credit control helps keep cash flowing and reduces payment delays.
Contact customers before invoices fall due to confirm payment dates and deal with any issues early. If payment is late, follow up promptly and professionally.
Lenders look favourably on businesses that actively manage their customer payments and maintain strong financial controls.
Is Invoice Finance Right for Your Startup?
If your business sells to other businesses and issues invoices with payment terms, invoice finance could provide a valuable source of working capital without waiting months for customers to pay.
It can help support growth, improve cash flow and provide the confidence to take on new opportunities without putting unnecessary pressure on your finances.
Speak to an Invoice Finance Specialist
If you’re looking for invoice finance for startups, we can help you compare facilities from a wide range of UK lenders and find the most suitable option for your business.
Get in touch today for a free, no-obligation review and discover how invoice finance could help your startup grow.