Invoice Financing

Invoice Financing can improve your cash flow and ensure that you're paid as soon as you send your invoices

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Why choose Invoice Financing?

There are many reasons why Invoice Financing is a great route for many businesses. Ask any business who relies on invoices being paid and they'll tell you what a drawback it can be when working with late paying companies. The total amount of unpaid invoices each year is in the billions and it's rising all the time. 


Invoice Financing allows for immediate access to cash and a positive cash flow which allows for growth, unrestricted by traditional methods are lending. Plus, there's no real estate involved with Invoice Financing, which makes it much lower risk. If you were to turn to a traditional route of business finance, you'd likely have to put up personal or commercial real estate as security. With Invoice Financing, the value of the invoices secures the finance so real estate assets aren't at risk.


Another huge draw with this type of finance is that it can often be approved and in place in a matter of weeks, not months. Once an account is up and running, funds can typically be accessed within 24 hours at call.


There's actually a few different types of Invoice Financing, so before you make your decision, it's important to do a little research and reading up on these. Broadly speaking, there are two key types of Invoice Financing you might choose, and you need to decide which type is the best fit for you:


Invoice Discounting

This is probably the most straightforward option with Invoice Financing. You sell unpaid invoices to a lender and they give you a percentage of the value. Once paid, the lender pays you the remaining balance minus their fee. You are essentially using your invoices as collateral for a loan to keep your cash flow in check.


Invoice Discounting means that everything will be financed automatically and up front. The difference with this product over others is that the invoice financier wouldn't manage your sales ledger or collect debts on your behalf, so you are responsible for collecting debts and remaining the point of contact for your customers which is attractive for many business owners. You stay in control of your sales ledger, collecting payments and sending out reminders in the usual way.


Invoice Factoring

Invoice Factoring (also known as debt factoring or just factoring) works in a very similar way to invoice discounting, aside from you are not responsible for collecting the debts from your customers. This frees up your time to focus on other important areas and to keep everything ticking along nicely.


As with Invoice Discounting, you give the lender (or factor) your invoices and they will give you a percentage of the invoice's value to solve your cash flow issue. The lender will then chase up and collect the debts directly from your customers on your behalf and once paid, you'll be paid the remaining balance minus their fees, which is typically around 2% of the overall value of the invoice.


Other Invoice Financing products

There are also a few variants in between Invoice Factoring and Invoice Discounting, including options which allow you to crowdfund selective invoices (called Invoice Trading). 


Invoice Trading

Invoice Trading (sometimes referred to as 'auction-based invoice finance') is pretty different to Invoice Discounting and Invoice Factoring as it is based on the principle of peer-to-peer lending. With this option, businesses use online invoice trading platforms to sell invoices to investors, such as institutional investors, asset-based lenders, high street banks, cash-rich companies or high net worth individuals.


During the process, businesses auction their invoices individually or in bundles to the bidders who then compete to offer the most competitive price to advance them the funds. The seller then purchases back the invoice from the buyer, choosing whether to do so after 30, 60 or 90 days.


Which option should I choose?

With so many options to choose from, you might be feeling confused. If you're not sure which is the best option for you, we're here to help. Alternative finance and Invoice Financing can be a tricky thing to navigate without the right advice. Give us a call and we'll be happy to explain invoice financing and provide you with recommendations by SME finance experts.

  • Invoice Discounting: Cheaper but all your debtors must be financed. Usually only for larger firms.
  • Invoice Factoring: Select invoices to finance as suits you. Convenient and for that a little more expensive.
  • Invoice Trading: Crowdfunders will now finance individual invoices at competitive rates
  • A mix of all of the above: There are many variants available. Give us a call to discuss what would work for you.

Frequently Asked Questions


What percentage of my invoice can I fund up front?    

It all depends on your business, but you can potentially fund up to 90% of your business up front. The typical figures are anything from 75-90%.

What security is required?    

This depends on which Invoice Financing option you choose. If you go for Factoring or Invoice Trading then it is likely that no security is required. Invoice Discounting usually requires a floating debenture over your business.

I'm already with someone for my Invoice Finance; is it easy to switch providers?    

Yes, it’s very easy and it happens all the time. There could be a number of reasons why you might consider switching to another provider. Perhaps you’re unhappy with the level of service or you’re searching for a more cost-effective deal. The good news is that despite what people may assume, switching providers is not a lengthy process.

Is it possible to get Invoice Financing for start-ups?    

In some cases yes, but it all depends on your business and your projected turnover as this will be taken into consideration when going through this process. Not all providers deal with start-ups, but there are providers out there that do.

Do finance providers require Personal Guarantees?    

No, not always. The finance is secured against your debtor ledger and assuming this is adequate, a Personal Guarantee may not be required.

Will it make my business look bad if I have Invoice Finance?    

No, not at all. This is a common misconception. Over 40,000 UK SMEs use Invoice Financing and it merely shows that you are prudently managing your cash flow. If anything, that should give all your customers and suppliers more confidence in your business.

Is it possible to get Bad Debt protection or Credit Insurance?    

Yes, one of our Invoice Financing specialists can arrange this for you, as either part of your facility or separately. It’s important that you have the protection in place, just in case your customer cannot settle their invoices.

If my business is in the construction industry, can I still get Invoice Financing?    

Yes, that’s fine. For debtors overseas, international factoring (or export finance as it is sometimes referred to) is the best solution. It works in the same way, except that the UK factor works directly with agents in the country that the invoice is issued to. We have plenty of providers that will arrange Invoice Financing for overseas debtors, so get in touch with us to find out more.

My debtors are all overseas; can I still get Invoice Finance?    

Yes. We have providers that will arrange Invoice Finance for overseas debtors.

How much does Invoice Financing cost?    

This depends on which option you choose (Factoring, Invoice Discounting or Invoice Trading) but there is usually a facility fee of 0.5-2.5% and also a charge for the finance on each invoice (again anything from 1-3% over BBR).

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What do I need to apply?

Applying for Invoice Financing, Factoring & Discounting is very easy. Below you'll find all of the things you need in order to make your application… 

  • Eligibility Criteria Good debtor book and ideally an established business with good credit.
  • Documents Required Financial statements, debtor ledger.
  • Additional Comments Invoice financing for small business clients can vary widely. We offer recommendations, guidance and tailored support for your unique business. 

Invoice Financing explained

Invoice Financing is a hugely competitive market. High street banks will usually provide the best rates but, unlike a specialist Invoice Financing company, they usually only finance your entire book.

High street lenders don't deal with concentration risks very well (i.e. if a disproportionate amount of your business is with one debtor) and they may not be as flexible as you might require.

Looking beyond the high street, there are many other options from challenger banks and private lenders, to crowdfunders. Each of these alternative options offer varying degrees of flexibility. It's a specialist area and if you get locked into long term contracts, the mistakes can be expensive. But don't worry - that's where we come in. To get an expert overview of the market and specialist recommendations for your business, contact us today.

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