Invoice financing: send a prepaid invoice

What is invoice financing?

Invoice financing involves selling an invoice to a financing company. You are personally responsible for ensuring that these invoices are paid by your customers. They will not see that the invoice has been prepaid by a financier and that you have entered into a loan, and you will remain the initial point of contact for your business associates. This is different from factoring. With factoring, your customers can see that a financier is involved.

The prepayment will ensure that your business will have access to your working capital quickly. This allows you to meet your short-term payment obligations yourself. For example, pay suppliers, pay salaries, carry out maintenance and replenish stocks. As soon as your customers transfer the money from the invoice, you repay the lender.

How much will it cost you?

The fees payable for invoice financing vary depending on the business, depend on their approach, and whether they use financial technology (FinTech). Compare the terms and conditions and interest rates.

2 examples

1. The financing company transfers 90% of the invoice amount to your account. Once the funding term has passed, you will repay the financier 100%. The financier deposits the withheld 10% (less costs and interest) back into your bank account.
2. Invoice financing with support from FinTech. Financial technology creates a secure transaction process on a platform. Costs are low and you use a simple ICT connection. With smart data, the financier looks at your buyer's financial health. For example, you are paid 80% of the invoice (minus financing costs). After the invoice term, settlement takes place with principal and interest to the funder.

Worth your business’s while?

If you supply products or services to the business market, you often sell on account. Since this means you do not receive any direct payments, this could potentially cause problems for your business’ cash flow. However, as you do need these funds to keep your business running, invoice financing might be a good option for you. This offers the additional benefit that you receive a few percentages discount on your invoice if you pay within one week, resulting in further gains.

Payment terms in the Netherlands have been increasing for SMEs, due to increasing prices. This could cause your business to run into financial difficulties. Cash flows run out, and there are no funds available for new purchases or to cover monthly expenses. Invoice financing offers a solution for payment delays on the part of customers.

Guidelines for acceptance

Providers of invoice financing services will be eager to land you as a client. You should take into account that these money lenders set terms and conditions in order to keep the deal attractive to both parties. Sector/industry, funding amount, the business’s financial statements, its history/track record, client or customer diversity, average invoice amount, and the number of monthly invoices issued all affect these terms and conditions. By compiling an accurate annual record, you can quickly research or supply this data.

3 tips

1. Invoice financing is not based on a minimum monthly limit; instead, you use this financing type at a time that best suits you. This gives you the flexibility you need.
2. Learn about the opportunities, and the terms and conditions offered by providers of invoice financing.
3. One alternative to invoice financing is a short-term business loan. This involves paying interest on the portion of the loan you have drawn down. You can use the loan to bridge the gap between the delivery or supply of your product, and payment by the buyer/customer.

Enlisting help

Help increases your chances of getting funding. With the right adviser and a good financial case, you stand a better chance of a positive evaluation of your funding application. These advisers can help you. Do you have questions about financing and money matters? Call the KVK Financing Desk.