A simple guide to invoice financing for startups

February 5, 2024

A simple guide to invoice financing for startups

Access to the cash needed to fuel growth is critical for startup businesses looking to establish themselves within international markets.

Across a business finance landscape dominated by bank loans, equity financing, and government schemes, a powerful tool tailored explicitly for startups like yours is gaining traction – invoice financing.

If you find yourself struggling with cashflow while waiting for customers to pay, you are not alone. Payment terms that can be as long as 120 days are not uncommon, and they stifle the ability of startups to grow quickly and sustainably.  

In the face of such challenges, invoice financing is increasingly viewed as a silver bullet for scaling up efficiently.

In this blog, we explore invoice financing, why it is becoming so popular among the startup business community, and how it could be the key to unlocking your brand’s potential.

Understanding invoice financing

Let’s imagine a scenario that’s all too familiar to many startups and small businesses. You export a large order to a customer on November 1st. As Christmas nears and capital is needed to re-stock, devise deals and offers, and pay staff for their overtime, you become acutely aware of a problem. The money owed to you for that November 1st order – cash that is crucial for financing these needs and initiatives – won’t land in your business account until the end of February the following year.

During payment delays such as these, startup business owners can be forced into debt by taking out short-term loans to cover the four-month payment period or simply accept that they must cut back on value-adding activities.

Alternatively, the invoice for that large order can be sold to an invoice financing provider, and the cash made available within days.

Not only would this advance provide the working capital owed to you right away, but the financier would even take on the responsibility of collecting payment for the original invoice.

The power of invoice financing for startups

The scenario described above – and how invoice financing provides a powerful solution – is one that will resonate with businesses of any size. Nonetheless, it is startups that can benefit especially profoundly.

Here’s how:

Instant access to cash: Cash is a particularly urgent commodity when a new business is still in the process of finding its feet.

As invoice financing can lead to 90% of an invoice’s value being deposited in your account in as little as 48 hours, your only concern will be securing enough orders in the first place. Getting paid for those orders becomes the financier’s problem.

Zero collateral required: Invoice financing involves selling an invoice to a third-party financier. Once that sale is made, the deal is done. You incur zero debt, meaning there is zero risk to any of your business assets.

No chasing invoices: Many startup businesses soon discover that chasing invoices is one of the most stressful aspects of running a successful enterprise. Aside from the time needed to do it, it can lead to difficult conversations with the buyers you rely on.

Once you’re approved for invoice financing, the financier even takes ownership of the invoice.

Strategic investment enabled: For startup businesses, investing in the likes of professional marketing campaigns, skilled staff, and new technologies can feel like the preserve of more established entities.

With the immediate cash injection from invoice financing, such growth-enabling initiatives suddenly become credible.

Acquiring invoice financing approval

The process of securing invoice financing approval can differ slightly between providers. However, a typical approval journey goes something like this:

  1. Having chosen a provider you trust and one that major players also trust in the finance world, you'll create an account on their website;
  2. With your account live, you’ll be asked to enter your buyer’s name to assess its financing limit;
  3. Next, you’ll upload the invoice that needs to be financed on the platform, together with any shipping document(s), such as a Bill of Lading, Air waybill, or CMR documents.

At this point, the provider will decide whether or not to approve the invoice and shipping documents.
  1. Assuming your invoice and shipping documents are approved, you will be sent two documents – an Agreement from the provider and a Notice of Assignment for the buyer.
  2. You sign the Agreement, and both you and the buyer sign the Notice of Assignment.
  3. Within days, 90% of the invoice’s face value minus any pre-paid amount is paid directly into your bank account. The remaining 10% is held in reserve to cover the provider’s fees and potential offsets or late payment charges.
  4. On the invoice's due date, the buyer pays the invoice to your invoice financing provider, who in turn pays you the outstanding money owed minus the provider’s fees.

Invoice financing. Easy. Fast. Secure.

If you’re new to invoice financing, like any unfamiliar means of securing finance, it can seem a little daunting. Yet, it is typical that a startup will use the facility once and go on to integrate it into its core operations on a regular basis.

Quite simply, no other financial instrument can safeguard your cashflow with such speed and simplicity while introducing zero risk to your business.

This is about turning your outstanding invoices into a catalyst for growth. With the right approach, you can navigate cash flow challenges and scale your startup business to new heights.