Invoice finance: What are the pros and cons?
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Whether your business is just finding its legs or already an established player in your industry, managing cash flow remains an ongoing challenge. This goes doubly so for businesses that invoice other businesses.
If you're chasing up unpaid invoices more often than you'd like, invoice finance offers a potential solution. Below, we explore some of the pros and cons businesses should be aware of if they’re considering invoice finance.
Pros of invoice finance
Generally, some of the main advantages of using invoice finance are:
- Secured against your invoices
- Improved cash flow
- Facility grows with your business
Secured against your invoices
Traditional business loans often require some form of security, and if you opt for an unsecured loan you might find they tend to attract higher interest rates. Newer businesses and those with limited assets might not find either option suitable.
Invoice finance, on the other hand, is secured against the value of unpaid customer invoices. Along with eliminating some of the hurdles around accessing financing, this also makes it less risky for the borrower as the funds are already owed to them.
“By using your receivables as collateral, you can quickly access valuable cash without having to offer property or equipment as security and keep your balance sheet intact,” said Supply Chain Finance Manager at Octet, Joe Donnachie.
Improved cash flow
Unlocking cash tied up in unpaid invoices means that your business gets paid as soon as the lender provides the funds, rather than waiting upwards of a month for customers to pay.
Donnachie explains that growing receivables can become a source of concern for many business owners, particularly if enough stack up that the company risks experiencing a dreaded cash flow 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,” he said.
Facility grows with your business
Unlike a business loan, which offers a specific sum to be paid off over a fixed period, the amount of funding available through invoice financing increases as your business raises more invoices.
Founder and CEO at Timelio, Charlotte Petris explains that this flexibility can work well for businesses that are going through a high-growth phase or experience seasonality in demand.
“For these businesses it can be hard to accurately predict cash flow requirements and having a finance facility that is flexible and grows with the demands of the business is critical,” she said.
Cons of invoice finance
Some of the disadvantages you might encounter when using invoice finance include:
- Facility may be disclosed
- Less funding during low seasons
Facility may be disclosed
Some forms of invoice finance involve selling your accounts receivable ledger to a third party, who will then assume responsibility for chasing up payments. This can create problems for business owners who want to keep their need for finance private.
If you have questions around confidentiality, make sure to bring it up with your lender before signing up. While customers will be required to pay invoices directly into a lender’s bank account, you might be able to arrange for this to be done in a confidential way.
Less funding during low seasons
Of course, the flipside to having a facility that grows with your business is that funding can dry up during quieter periods. While additional cash might not be needed to cover day-to-day operations, this can be a problem if you’re relying on invoice financing to expand your business.

Who is invoice finance good for?
If your business counts other businesses as customers, offers long payment terms, and doesn’t have collateral readily available, it might benefit from using invoice finance.
“There are many types of industries that rely on invoice finance, for example, manufacturing, professional services, construction, labour hire, wholesale, recruitment are just a few,” said Petris.
“Because the invoice or receivable is used as security for the funding, it is a popular choice for services businesses that do not have extensive assets or plant and equipment on their balance sheet to use as security.”
For more information, browse our small business invoice finance guide.
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