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All things invoice finance: unlocking the power of your receivables

Blog By Duncan Khoury – 23 October 2020

2020 has been a challenging year for businesses everywhere. Some industries have ground to a complete halt, while others are experiencing such rapid growth they’re struggling to get on top of demand. 

Wherever your business falls, you’ve no doubt seen first-hand the pressure this has put on your working capital and cash flow management. Spikes and dips in demand create funding gaps, impact cash flow, and can make it difficult for businesses to meet their financial obligations on time. 

Invoice finance may help manage these challenges. As a flexible financing solution that unlocks cash fast it can bridge funding gaps, keep cash flowing, and capture new opportunities. 

Let’s take a closer look at what invoice financing is and how it can power your business. 

What is invoice finance?

Invoice finance is a source of funding in which you can use the money owed by your customers as collateral for gaining early access to a meaningful portion of those funds from a third party financier. A flexible finance option, it can provide fast cash flow to your business and help you manage your working capital. 

How does Octet Invoice Finance work?

  1. Make the deal – You sell something to another business (who becomes a debtor).
  2. Raise the invoice – You send the invoice to your debtor, and when you’re ready to make a request for funds upload it to the Octet Platform.
  3. Receive funds within 24 hours – Octet will provide you access to up to 85% of your unpaid invoices via a flexible facility, and let you draw down on what you need.
  4. Your debtor pays – The payment goes into a nominated account that we manage.
  5. You receive the balance – We pay you the remaining balance, minus our agreed fees.

When does invoice finance work best?

For certain industries and business models, having an invoice finance facility in place can give you a huge advantage. Here are some examples where invoice finance can be a particularly great fit:

  • Long customer payment terms – Long payment terms and payment cycles, with potentially long delays between selling a product or service and receiving the cash for it. 
  • Seasonal sales cycles – Sales and cash peaking throughout the year, but costs remaining consistent regardless of the season. 
  • Fast growing – Facing an increasingly strong demand, but lacking the cash flow needed to meet it. 
  • Lack of physical assets to provide as security – Especially relevant for service based businesses, newer businesses, and those that are rapidly growing. 
  • Reliance on balance sheet – Depending on the structure of your business, keeping healthy balance sheet metrics could be a key consideration. 
  • Desire for early payment discounts – Hoping to negotiate early payment discounts with your suppliers, but lacking the cash needed to secure them (an invoice finance facility can provide the funds needed to help secure these deals). 

These examples can apply to businesses across a wide range of industries. The most common industries to benefit from invoice finance include:

Different types of invoice finance 

There are two different types of invoice finance available. You’ll need to consider both and see which is right for you. 

Disclosed invoice financing is when your debtor is aware of the involvement of the finance company (i.e. Octet). Instructions to pay the finance company are included in the invoice, and funds are paid to a nominated account. The finance company also has the right to chase late payments. 

The advantage of disclosed invoice financing is that it’s easier to secure. However, it can require careful relationship management with your customers as the finance company may also deal with them directly.

Confidential invoice financing is where your debtor is unaware their invoice has been sold. The finance company isn’t involved with any communication with the debtor, which continues to be handled by your business.

The advantage of confidential invoice financing is that you retain full control of the process and the relationship with your customer. However, to secure this type of financing you’ll need to meet a few more conditions as the risk to the finance company is generally higher.

Advantages of invoice finance

Invoice finance is an increasingly popular source of funding, and with good reason. Here are some of the benefits:

Fast access to cash

If you have cash flow challenges, one of the biggest problems is finding cash fast when you need it. Traditional lenders such as banks can take weeks (or longer) to approve finance thanks to their strict documentation requirements. With invoice financing, once you’re approved, you can have access to the cash tied up in your invoices within 24 hours. 

Access to your money without security

If you’re looking to traditional sources for funding (e.g. banks), you may need to offer property as security and to add a loan to your balance sheet. Depending on the stage your business is at, you may not have the assets available to do this. Even if you do, taking on a loan may not be the best move for your balance sheet.

Invoice financing is an attractive and flexible alternative. By using your receivables as collateral, you can quickly access valuable cash without having to offer property as security and keep your balance sheet intact. 

Improve your cash flow and power business growth

What could you do if all your invoices were paid within 24 hours? Invest in new projects? Expand your operations?

With invoice finance, you can make this happen. By having an invoice finance facility in place, you’ll improve your cash flow and have cash available to explore the possibilities and power your business growth.

Turn growing receivables into an available asset

Growing receivables can be a concern for any business. Let them grow too high, and you risk experiencing the dreaded cash crunch. With an invoice finance facility however, you can turn this asset into readily available cash and keep your business on track for high growth.

Diversify funding and rely less on banks

There are a few different ways you can finance your business, and the best method depends on your business and the activity you’re looking to fund. Using an invoice financier helps you diversify your sources of finance and spread risk. 

Make your business self-replenishing

If you need to get paid before you can re-stock your products or supplies, invoice financing could be the perfect solution. With fast access to cash you’ll never have to wait again, helping you keep your customers happy and your revenue healthy. 

Alternatives to invoice finance

While invoice financing is a flexible solution for many businesses, there are other options available. These include:

Internal funds

If your business has existing cash or savings, tapping into them can be a popular option as it requires no loan or interest payments. However, it can also impact your ability to pay future expenses or take advantage of growth opportunities.

Debt finance 

Often provided by traditional lenders in the form of a loan or overdraft, the interest on these sources of finance is tax deductible and you retain full control of your business. You will need to consider long term interest repayments though, and whether you can provide adequate security.

Equity finance

In exchange for funding, you can offer a share in your business to an investor. It’s less risky as there is no debt to repay, but does mean you’ll need to give up ownership of part of your business.

Trade Finance

This type of finance works as a revolving line of credit that you can use to pay suppliers, and can be secured through guarantees. To be eligible, your business will need to meet minimum trading, turnover and profit periods.

Supply chain finance 

A unique blend of invoice finance and trade finance, supply chain finance links buyers and suppliers to help free up your working capital. As a completely unsecured product, it’s only available to businesses with a strong profit and substantial turnover. 

Power your growing business with Octet’s finance options

Intelligent businesses use finance to fuel their growth. If you want to unlock the cash in your receivables and power your growth, we can help. 

Talk to us today


Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.