Invoice finance vs bank overdraft: which is better?

Invoice finance is most commonly compared with a bank overdraft.

But invoice finance has a couple of very important advantages:

How much you can borrow

Nowadays, it isn’t easy to get a business overdraft with anything like a substantial limit.

Unless you’re willing to put your own property on the line as security, any overdraft facility provided to you is going to be very modest and quickly absorbed.

But an invoice financier’s principal security is your book debt, and if they are satisfied that it is collectible they will not need any further collateral in order to provide you with a much larger facility than you would typically be able to borrow with a bank overdraft.

It’s flexibility

With invoice finance, there is no fixed limit - unlike a bank overdraft.

It is particularly well suited to growing businesses because as I outlined above, as your business grows, the amount of funding available to you grows with it.

Compare that with an overdraft; at some point, you’ll outgrow it and getting an increased limit agreed is just as challenging as getting a decent overdraft agreed in the first place.

An overdraft is a better solution for steady state businesses with very predictable cash flows, that need to borrow occasionally for short term ‘pinch points’.