Business Invoice Finance

What is Invoice Finance?

The invoice finance providers we have access to can pay up to 90% of the value in your invoices the minute they are raised. Then, once the payment has been settled in 30, 60, 90 or even 120 days, you will receive the balance minus interest fees.

Key features of invoice finance

• Suitability: Businesses that have payment terms beyond 30 days and who are selling B2B. Unfortunately invoice lending isn’t suitable for businesses selling B2C.
  
• Purpose: Used to strengthen ongoing cash flow.
  
• Amount: Up to 90% of invoices can be advanced on day one. This will depend on the amount of invoices you have as well as business trading time.
  
• Term: No fixed term. Rolling facility.
  
• Cost: Between 1%-4% of the invoice value. Some products take an annual fee as well as a subscription fee.
  
• Security: Some invoice funding solutions will be totally unsecured. Others may ask for a personal guarantee.
  
• Speed: Applications can be processed, and funding arranged, within 48 hours.
  

An example of invoice financing

• A business has just set up an invoice finance facility through Aurora Capital to assist in the day-to-day working capital of the company.
• The business owner issues an invoice for £10,000. The invoice is for work that has already been completed on 30-day credit.
• It is agreed with the invoice finance company that the business will be advanced 90% of the invoice value upfront, and the rest when the customer settles in full. The business therefore receives £9,000 as soon as the invoice is raised.
• The customer then settles the invoice 30 days later, with the £10,000 being paid into an escrow account held by the lender (depending on which product you choose, this can be kept confidential).
• The invoice finance company then pays the business the remaining £1,000, minus their fees.
• With invoice financing, businesses can unlock cash tied up in invoices for a small fee. This can not only assist the day-to-day running of the business, but also free up capital for potential growth plans.

Types of Invoice Finance

As with most types of finance, there are different styles of invoice loans to suit different business needs. Identifying how much control and involvement you want is key to finding the right invoice financing style for you. Read on to find out what you can expect from each type.

Selective Invoice Finance

Release capital on one single invoice rather than your whole ledger, and quickly increase your cash flow.

Invoice Factoring

Get funds from all late payments with this full-facility product that deals with all your invoices at once.

Invoice Discounting

Increase your cash flow from unpaid invoices while still maintaining direct communication with your clients.

More about: Selective Invoice Finance

Also known as single invoice finance, selective invoice finance is particularly useful for large invoices that your company is waiting on. With this option, you can improve your cash flow quickly without having to overspend on fees.

How it works

Your business will select an individual invoice which needs to be processed quickly. You’ll then provide the details to the financing company and agree on rates and fees. Once the invoice is verified by the financing company, they will advance a percentage of the invoice value to you upfront. Then, when your client pays the remaining balance of the invoice, the selective invoice financing company will collect the debt and provide you with the rest of the payment, minus their fee.

More about: Invoice Factoring

Invoice factoring is a full-facility product which deals with all your invoices. With this service, clients are encouraged to pay on time with the backing of an external source.

This facility is generally used by companies turning over sub £3m. The facility is usually disclosed, meaning your customer will be aware that it is in place. This type of ‘credit control’ service safeguards you against falling into debt because of clients not paying or paying late, therefore allowing you to keep your business running smoothly.

How it works

You will provide the factoring company with details of all your invoices and agree on their rates and fees. The factor will then advance you a percentage of the invoice, and proceed with collecting the rest of the debt from your client. Once the payment has been collected, the factoring company will provide the remaining balance, minus their fee.

More about: Invoice Discounting

Commonly used by businesses with turnovers of more than £3m, this type of invoice finance facility is similar to invoice factoring, but without back office support.

Invoice discounting facilities require a client to retain their own credit control and sales ledger administration. This allows you to remain in control of any communication with your clients.

How it works

You will send the invoice finance provider your invoices as orders are fulfilled. The invoice discounting company will then deposit a percentage of the whole invoice to your business account. Once the agreed percentage has been paid to you, you can proceed to collect the remaining balance from your client.

The discounting company will claim their fees from this remaining balance, or you will send it directly to them, depending on your contract.

Who is eligible for invoice finance?

Companies that sell goods or services on credit to other creditworthy businesses are usually eligible for invoice finance. You will also need to ensure your invoices are for fully delivered goods or services. The ideal customer for invoice finance borrowing raises more than 5 invoices a month to other business customers

Are there any businesses that can’t use Invoice Finance?

Sectors that deal with sales to the general public (for example, retail) cannot get invoice financing. Nor can any B2B services that are billed in advance.

If you have poor credit, there are no guarantees that an invoice finance option would be available to you. However, there are certain lenders that can still work with adverse credit. This will depend on what the adverse credit is and how much it was for.

What are the risks of invoice finance?

As with all types of lending, there are risks that you should consider before going ahead with your application. We can help you to assess what type of funding will be right for your business. Potential risks of invoice finance include:

• The need for a credit check: This is usually a mandatory part of the application process, and will show on your credit report, which can affect your credit rating
• Excess charges: As with all lending options, defaulting on payments can result in excess charges
• Responsibility: If payments are not met, this is your responsibility, regardless of whether your customer has paid their invoice or not

What does invoice finance cost?

Depending on the lender, you can expect fees to be anywhere between 1%–4% of the invoice value. There are also products where an annual fee is taken, as well as a subscription fee.

How do I qualify for invoice finance?

If you sell goods or services on credit to other creditworthy businesses and your invoices are for fully delivered goods and/or services, you meet the basic criteria. With invoice finance, your future growth is more important than an extensive credit history.

Do I have to finance all my invoices?

No. You can choose to have cash advanced to you for all of your invoices, or those from select customers. Invoice finance allows you to maintain control over your collections and relationships with your customers.

Is invoice finance suitable for one-off transactions?

Some lenders will finance one-off invoices on an as-needed basis, otherwise known as selective invoice finance. Since there is no minimum requirement, we would encourage you to make ongoing, regular use of invoice finance to keep it active and accessible. You can of course terminate the agreement at any time, and there are no penalties.

What if my business is still under contract with my current lender?

It is possible to get a new lender in place to lend as soon as the contract is open.

Would using invoice finance give my customers the idea that I’m having financial difficulties?

Invoice finance is viewed as a normal, progressive business practice for growth-oriented companies. In fact, it is one of the fastest-growing types of funding, and is used by more than 40,000 companies in the UK each year, according to the British Insurance Brokers’ Association.