Invoice finance vs business overdraft

  Published: 28th August 2018

For businesses both start-up and established, when it comes to finding the right financing support, countless struggle to determine which option would be most appropriate for their requirements. In fact, many businesses fail to adequately research and analyse the options available to them, and simply jump straight into the application for a business overdraft.


Whilst a business overdraft is a viable option for businesses across the UK, for a number of businesses there may be more suitable finance solutions available to them that would better fit the nature of their work, including invoice finance and discounting.


Working capital is the key to any business’ growth, and therefore finding the ideal finance that will provide this working capital in a way that works for your business is vital. Below we will take a look at the difference and benefits of business overdrafts versus invoice finance.


Business overdraft


Business overdraft can be a great option for a business looking for that extra bit of working capital in the short term. They are more often than not extremely simple to set up, and should a business want to pay it off, usually a bank does not charge an additional fee.


However, a business overdraft must be closely monitored at all times to avoid substantial bank charges for going over the limit, as a personal overdraft would. There is also the added disadvantage that the bank can withdraw the overdraft at any time and ask for the money back, as well as the fact that often overdrafts won’t grow with the business. Subsequently utilising the working capital, a business overdraft provides in the long term would not be recommended.


Invoice financing


Invoice finance offers a flexible financing solution for businesses, whether start-up or established, that will increase or decrease in correlation with your business’ sales ledger. One of the biggest benefits of invoice finance is that it allows you to release a percentage of an invoice as soon as it is raised, meaning that you no longer have to wait the 30, 60 or even 90 days for a client to pay. In addition to this, with invoice finance, your finance provider takes care of payment collection, therefore reduced administration time and overhead costs for your business.


Where some businesses find issue in invoice finance is the fact that, due to your finance provider chasing for payment, your customers are ultimately aware that you receive this type of finance. However, there is an option for businesses to choose invoice discounting, which is very similar but confidential, therefore your business collects payment as opposed to the finance provider.


Would your business benefit from invoice finance over an overdraft? Speak to our team today to discuss the options available to you.