Clancy Business Finance

Business Finance & Property Finance Specialists

More business owners are choosing Invoice Finance over traditional bank overdraft – with good reason.

When a company needs working capital finance they usually go to their bank, in search of an overdraft. Why? Well, better the devil you know, goes the thinking. And for many companies, the traditional overdraft is a hard habit to break.

But in this quickly changing business world, a bank overdraft is not always the best working capital solution for a company. Nowadays, overdrafts are increasingly hard to get and many businesses have had their bank overdrafts reduced or withdrawn.  For others, their applications are simply refused.

This could be a reason that more businesses owners are opting for Invoice Finance – attracted by the more flexible terms, better access to working capital, and greater headroom for growth.

Invoice Finance allows a company to free up working capital tied up in unpaid invoices. With companies being able to access up to 85% of the value of their sales invoice, and with the amount of finance increasing as sales go up, it’s no wonder more businesses are moving from their traditional overdraft and switching to Invoice Finance.

Here’s where Invoice Finance compares very favourably against the bank overdraft:

Flexibility Invoice Finance grows in line with your sales, so as your turnover grows, so too does the amount of finance available. A bank overdraft, on the other hand, is restrictive – if you want to increase the limit, you need to negotiate it.

Ongoing funding. Invoice Finance agreements are usually for a minimum of 12 months, while bank overdrafts are repayable on demand. This continuity of funding from Invoice Financiers provides peace of mind to business owners.

Cost effective. The Invoice Finance discount charge (interest)is circa 4%- 5% per annum, and it compares very favourably to overdraft rates which are typically 9%- 10% per annum. Even taking into account an administration fee for Invoice Finance, the overall cost can be considerably less than an overdraft.

Maximise your assets.  For many companies, the debtors ledger is their most powerful asset.  In some cases, the debtors ledger is the only asset!  However banks typically place a much lower value on the debtors ledger when setting overdraft limits, compared to Invoice Finance, which maximises the value of a debtors ledger by allowing a business to access up to 85%  of outstanding invoices.

So, there you have it – this might explain the reason that more business owners and their advisors are turning to  Invoice Finance in favour of the traditional overdraft.