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• 19 Nov

  How To Get Invoice Loans And Dispelling Common Misconceptions

  We often hear the term "invoice loan" from prospective clients seeking business funding.

  However, they normally want invoice financing rather than a business loan. The term stems from a misunderstanding about the nature of this type of receivables-based finance.

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  Invoice Loans Dispelling A Common Misconception

  A common misconception leads prospective clients to refer to factoring or invoice discounting (the two forms of invoice finance) as an "invoice loan". Loans are generally well understood and funding against receivables remains an arcane art SMEs do not understand well.

  As clients often don't understand the differences they mix up the two terms which refer to very different product structures.

  What Is The Difference Between Invoice Finance And A Business Loan

  In a recent article, "Compare A Loan With Invoice Finance," we examined the differences between invoice finance and a business loan. The article has a link to a spreadsheet comparing funding levels which tracks how the level of funding moves differently for the two types of product.

  Key Structural Product Differences

  Essentially, these are the key structural differences between these financial services:

  • Business loan - is for a fixed sum which is repaid, with an interest margin, over a fixed term of regular payments
  • Invoice finance - is a prepayment against outstanding sales invoices that is repaid by customers paying your invoices (fees are charges to use the service), new invoices attract new prepayments - hence the facility revolves

  The revolving nature of invoice finance is very different to a loan where the capital sum advance is gradually reduced as you make repayments.

  Legal Differences Between Business Loans Versus Invoice Finance

  This should not be taken as legal advice, consult your solicitor for that.

  These are some of the differences between loans vs invoice funding.

  Financial Product Structuring & Ownership

  With a loan, the borrower retains ownership of their sales invoices, although they may pledge them as security for the loan by way of a charge or debenture over their assets. With invoice financing, the invoices are either sold outright or assigned to the financier in return for the prepayment against those invoices.

  Terminology For The Parties Involved

  With loans we talk about "lenders" and "borrowers", whereas invoice finance companies are normally referred to as "funders" and the concept of borrowing is not present. It is a prepayment of what is already due to the business rather than money being borrowed, hence there is no "lender".

  Fee Terminology & Repayment Structure

  With a loan, interest (normally including a margin of profit for the lender) is charged. With invoice finance, there is no interest, only a discount fee and other fees for services provided or to cover administration costs. See our full explanation of the costs.

  The loan is repaid in chunks over time while the invoice funding is repaid when the customer pays your invoices (any balance of the invoice value due to you is passed to you at this point).

  Additional Support & To Get Quotes

  If you need any additional support or to get quotes please contact us on 03330 113622 and we will be happy to outline the options and comparative costs for your company.

  By Glenn Blackman