Invoice finance, explained badly by everyone else

What is invoice factoring? Explained through a game

You did the work. So where is the money? Six orders. Sixty-day payment terms. You pay your costs today and get paid two months later. Play it once with invoice finance switched off, then switch it on and watch what changes.

What just happened

Every order is profitable. That was never the problem. The problem is that the cost lands today and the payment lands in two months, so a growing business runs out of cash while its order book is full. That is what kills profitable companies.

Invoice finance closes the gap. A lender advances most of the invoice within about a day of you raising it, holds back the rest, and settles up when your customer finally pays. You are not borrowing against the future. You are selling something you already own.

The two things the game deliberately makes obvious

First, the cost of finance is a fee, and the cost of no finance is the orders you had to turn down. Drag the margin slider up and the fee stops looking like the expensive option very quickly.

Second, it funds the invoice, not the ingredients. You still need working capital to fulfil an order before you can raise anything against it. Anyone who tells you otherwise is selling you something else.

What the sliders are really showing you

Drag payment terms from 30 to 90 and watch the damage. Time is the cost driver in this whole market - the same facility on a debtor who pays at day 90 costs roughly three times what it costs on one who pays at day 30. Which is why the single most valuable number in your business is not the rate you are quoted. It is how long your customers actually take to pay you.

Rates and advance rates in this game are illustrative defaults, not a quote. Real facilities price on your sector, debtor spread, ledger quality and turnover. Built by Factor Now. Free to embed - take the code, keep the link.