When to pick invoice finance over a business loan

For both new and established businesses, managing cash flow can be a challenge. And if customers make a habit of delaying payment, you can find yourself stalling as a business, if not running into further trouble down the road.
Invoice finance helps get around this problem by letting you borrow against the value of unpaid invoices. The amount of funding available increases as more invoices are raised, and decreases (along with the associated costs) during quieter periods.
Supply chain manager at Octet, Joe Donnachie says invoice finance can suit businesses across a range of industries - including transport, labour hire and manufacturing - but many remain in the dark about what it has to offer.
“It is not uncommon for fast growing businesses to be unaware that invoice finance is a viable option for them, as often it can be lost in the myriad of other finance solutions on the market,” he said.
So how can you know if invoice finance is a better fit for your business than a traditional loan? Here are a few things to keep in mind.
Is flexibility a priority?
Founder and CEO of Timelio, Charlotte Petris believes businesses don’t have to pick one over the other, but there are times where invoice finance might be the more suitable option.
“A business loan is sometimes used in conjunction with invoice finance but, unlike invoice finance, a loan is capped and the loan size doesn’t fluctuate with cash flow demands,” she said.
This can sometimes wind up holding businesses back, particularly those which experience seasonality in demand and those that are (or could be) in a high growth phase and require additional cash.
“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,” said Petris.
What about security?
When taking out a loan with a traditional lender, you’ll be offered either a secured loan (which requires you to put up property, vehicles or inventory as security), or an unsecured loan (which tends to come with a higher interest rate).
Donnachie says collateral requirements can be a problem for businesses without physical assets, such as service-based companies or those that are just starting out.
“Depending on the stage your business is at, you may not have the assets available to do this. Even if you do, taking on a loan may not be the best move for your balance sheet,” he said.
“Invoice financing is an attractive and flexible alternative. By using your receivables as collateral, you can quickly access valuable cash without having to offer property as security and keep your balance sheet.”
The bottom line
Invoice finance is one way for businesses to address long delays between selling a product or service and receiving payment for it. According to Donnachie, invoice finance could suit businesses that have:
- Long customer payment terms.
- Seasonal sales cycles, in which cash flow fluctuates but costs remain consistent.
- Strong demand but limited cash flow.
- A lack of physical assets to provide as security.
- A desire to keep a healthy balance sheet.
- A desire for early payment discounts.
For more information, browse our small business invoice finance guide.
Business loan comparisons on Mozo - rates updated daily
Line of Credit
Unsecured business funding up to $500K. Start the online application process in just 5 minutes, and get access to funds within 24 hours once approved. Great for ABN registered businesses with an annual turnover of $200K+.
Interest Rate
Upfront Fee
Funding speed
On Application2% to 3%Instantly, once approvedLine of Credit
Unsecured business funding up to $500K. Start the online application process in just 5 minutes, and get access to funds within 24 hours once approved. Great for ABN registered businesses with an annual turnover of $200K+.
- Interest Rate
- On Application
- Upfront Fee
- 2% to 3%
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- -
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Short Term Business Loan
Unsecured business loans from $10,000 - $250,000, over 6 to 24 months. Online application takes only 10 minutes and you'll know if you're approved within hours. Apply now.
Interest Rate
Upfront Fee
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On Application3.00%from 24 HoursShort Term Business Loan
Unsecured business loans from $10,000 - $250,000, over 6 to 24 months. Online application takes only 10 minutes and you'll know if you're approved within hours. Apply now.
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- On Application
- Upfront Fee
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- -
- Loan type
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Invoice Finance
Get your customer invoices paid early, without waiting up to 90 days for payment. Apply online in 10 minutes and select your local or overseas invoices to fund. Flexible funding with no lock-in contract.
Interest Rate
Upfront Fee
Funding speed
On Application$0.00Same DayInvoice Finance
Get your customer invoices paid early, without waiting up to 90 days for payment. Apply online in 10 minutes and select your local or overseas invoices to fund. Flexible funding with no lock-in contract.
- Interest Rate
- On Application
- Upfront Fee
- $0.00
- Ongoing Fees
- $0.00
- Late payment fee
- $0.00
- Transaction fee
- On Application
- Early repayment penalty
- $0.00
- Other fees
- -
- Loan type
- Line of Credit
- Security type
- Secured
- Minimum loan amount
- $10,000
- Maximum loan amount
- $100,000,000
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- 0 years
- Maximum loan term
- 4 months
- Repayment frequency
- -
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- -
- Minimum trading period
- 0 years
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- $0
- Application speed
- 10 Minutes
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- Extra repayments allowed
- yes
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- yes
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- No lock in contract, flexible funding drawdowns, international invoices, trade finance
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- -
Unsecured Business Loan
A straightforward business loan with no hidden Lumi fees or charges. Speedy application and approval process with fast access to funds according to Lumi. No repayments on Lumi Business Loans for the first 6 weeks (T&Cs apply).
Interest Rate
Upfront Fee
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from 9%$0.00Within same dayUnsecured Business Loan
A straightforward business loan with no hidden Lumi fees or charges. Speedy application and approval process with fast access to funds according to Lumi. No repayments on Lumi Business Loans for the first 6 weeks (T&Cs apply).
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- from 9%
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Buy Now Pay Later for Business
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Interest Rate
Upfront Fee
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0%0.012 hoursBuy Now Pay Later for Business
With Unlock you don't need the money to hand to buy something your business needs - they pay for it so you can get on with the job, then you pay them back later. With UnLock Mastercard®, you can buy supplies or pay expenses now, and pay later. No merchant fees, a quick tap, and approvals in a matter of seconds.
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- Loan type
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- Varies
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- If the UnLock facility is granted under the Government SME Recovery Loan Scheme Rules, T&C will apply.
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