Invoice finance or business overdraft – that is the question

Invoice finance or business overdraft - that is the question

Please note that an invoice finance facility is often more appropriate for long-term funding than an overdraft which is likely to cost more than an overdraft and be less flexible.

Overview of an overdraft facility

An overdraft is a borrowing facility attached to your bank account, set at an agreed limit. It can be drawn upon at any time and is ideal for your day-to-day expenses, particularly to see a business through cashflow problems.

  • Difficult for new or small businesses to qualify
  • Personal guarantees are needed to attain an overdraft
  • Banks often request extra security such as charge on a directors home
  • An overdraft is meant to be a short term source of finance and should not relied upon long term
  • Overdraft can be ” called in” or cancelled or removed at any time
  • An overdraft is only meant to cover the odd cash shortage and should not be over relied up as part of a business strategy
  • An overdraft is flexible and you can liaise with your bank manager to open and close a facility on request.
  • An overdraft is quick to arrange
  • Overdraft can be expensive and actually very costly if a facility maximum passed.
  • Interest and charges vary from bank to bank
  • There are no charges for paying of an overdraft and cancelling the overdraft facility
  • If an overdraft is extended often extra fees apply
  • You can only seek an overdraft from the businesses main banker.
  • An overdraft is to all businesses types.

Overview of an invoice finance facility

Invoice finance is a way of drawing money against your invoices.. It can provide a cost-effective way for businesses to improve their cashflow.

  • Invoice finance is a long term arrangement, providing working capital security and will only ever be cancelled if a business seriously falls on hard times
  • An invoice finance facility grows with turnover
  • You can only seek an invoice finance arrangement from a bank separate from the business banking facility
  • An invoice finance facility can be extended very easily
  • Invoice finance is only available to businesses that sell products or services on credit to other businesses.
  • Invoice finance is not necessarily the cheapest form of finance and can tie a business into a long contract.

For more information regarding invoice finance quotes please call 0800 597 4757 or apply online.