Invoice Finance vs Overdraft
When a business is looking to raise funding, Invoice Finance and Overdrafts are usually top of the list. Both products allow you to raise funds, but in different ways. Here, we discuss the benefits of Invoice Finance when compared to an Overdraft facility.
Invoice Finance gives you access to more funds
Invoice Finance is a product which allows you draw funds from your sales ledger, usually at around 80% of the total value the ledger. An Overdraft will generally be a much smaller amount, giving you access to less funding.
Invoice Finance grows in line with your sales
As Invoice Finance is a facility which is fully based against your sales ledger, when this grows so does your facility limit. On the other hand, an Overdraft would usually be fixed at a certain level, meaning that you may outgrow the facility. As a revolving credit facility, Invoice Finance is designed to be flexible to support growing businesses. This means it is easier to increase the amount of borrowing through the facility.
Invoice Finance is a more secure form of funding
An Invoice Finance facility is secured directly against your sales ledger. You will only be able to draw funds from the facility for completed work. An overdraft is rarely secured directly against, so if the business falls on hard times the director may be more likely to be at risk.
Businesses with a poor credit history are more likely to secure Invoice Finance
If a business has been turned down by the high street banks, or has a poor credit history, they are more likely to get funding through an Invoice finance facility. Due to the facility being secured against a company’s sales ledger, lenders are more likely to provide a facility as opposed to an Overdraft.