Invoice Finance (also known as Factoring, Invoice Discounting and Receivables Finance) is an arrangement whereby a business can “sell” (called an assignment) an unpaid invoice to a funder in return for an immediate cash advance with the balance being paid (less the funder’s fee) when the customer eventually settles the invoice.
UK origins of modern Invoice Finance began in the 1960’s and fast forward to the 21st Century we have sophisticated providers that combine the traditions of innovation and quality customer service with high-tech real-time 24/7 on-line interfaces for clients, where in some cases funding is released immediately the invoice is accepted on the system. It’s not just a UK business solution either. The latest Global statistics reveal world-wide Invoice Finance volume of 2,917BN Euros of which 68% relates to funding in Europe with the UK’s share being 329BN Euros. This is a funding solution that allows businesses of all sizes to maximise their cash-flow using a proven and established customer focused service.
What types of arrangement are possible?
- Funding just one invoice as a one-off arrangement
- Funding a series of invoices relating to a contract or order from a specific customer
- Funding invoices to different customers or one nominated customer from time to time
- Funding the whole sales ledger all of the time
Things to consider
- The invoice to be financed must be for goods or services already provided/delivered.
- The invoice(s) need to be correctly made out in the name of the customer who ordered the goods or services from you.
- The credit period offered to the customer should “normal terms” for the industry sector – for example 30 days or 60 days – sometimes longer up to 120 days or even much shorter credit periods 7 or 14 days.
- The funder will be interested in the credit rating of your customer(s).
- The invoice should not be overdue or delinquent or in dispute.
- Invoices for domestic UK sales and Exports can be financed.
- Different funders will have varying criteria, depending on the type of arrangement required and the potential client’s circumstances.
- Some funding arrangements could have long contracts eg 12 months whilst others might only have a 30 day minimum period or indeed no minimum period at all.
- The invoice(s) you wish to fund must not already be pledged to another lender.
- Facilities can sometimes include protection against bad debt – usually via a Credit Insurance policy (if you have your own policy that’s fine) if not, the funder will be able to arrange this or often simply include it as part of the arrangement. Again, this will depend on the structure of the facility – for example financing a single invoice for say £100,000 will likely need to be insured whereas invoices with small balances say under £2000 probably won’t.
- Where you have existing funding, for example a bank overdraft, mortgage or loan that may affect your ability to finance invoices to it’s really important to tell us about existing arrangements when we start working together.
Growth Finance team of experts will work with you to match your needs with the most appropriate funder.