Invoice Finance
The term invoice finance represents several different types of invoice funding available to businesses. The main principle of invoice funding is to release cash tied up in outstanding customer invoices. Invoice factoring, invoice discounting and selective invoice finance are the types of funding solutions to fall under the scope of invoice finance. This type of funding facility enables your business to have access to cash owed weeks or months in advance of receiving payment. This type of asset-backed funding solution is suitable for businesses ranging from small to large, that regularly invoice other businesses (B2B) for their goods or services. It is a solution to manage cash flow which is fast, flexible and convenient with completed work being paid for quickly.
Receive payment for work completed immediately
Unpaid customer invoices are used to indicate the money that is owed to your business to the invoice finance lender. Rather than waiting for the customer to settle their invoice, the invoice finance lender will buy their invoices at a discounted rate, advancing up to 95% of the invoice value upfront, and usually within 24hrs. This will help you avoid the usual payment terms and receive payment for completed work more or less immediately.
The way you invoice your clients doesn't need to change when using invoice funding. You will carry on with business as usual, invoicing customers for completed work and sending the invoice details to the invoice finance lender. The lender will advance you the first instalment, up to 95% of the invoice value which will be paid out to you straight away. Depending on the type of invoice finance you agree to use, credit control and chasing payments can either be handled by the lender or as normal through yourself. The final instalment will be paid to you by the lender on receipt of the customer's payment, minus any fees and service charges.
What about the rates and fees?
Invoice finance rates and fees typically range from 1% to 5% of the invoice value. These charges, also known as the discount rate or factor rate, may vary based on the volume and value of invoices processed monthly. Businesses dealing with a small number of high-value invoices often receive more competitive rates compared to those handling numerous low-value invoices.
The cost of invoice finance depends on various factors, including your business type, customer creditworthiness, invoice volume, value, and the chosen invoice finance facility.
Additional fees such as service charges or standing charges may apply, ranging from 0.5% to 3% or more of your annual turnover. These fees cover administrative tasks related to your accounts, such as credit collection and management.
Let's break down the cost example for better clarity:
- Invoice value: £10,000
- Upfront payment (95%): £9,500
- Final payment (when the customer settles): £200
- Total fees at 3%: £300
In this scenario, your business would receive £9,500 upfront, representing 95% of the invoice value. The remaining balance of £200 would be paid to your business once the customer settles the invoice in full within 30 days.
The lender's fee, based on a discount rate of 3%, amounts to £300. Therefore, your business would receive a total of £9,700 (£9,500 upfront + £200 final payment) from the original £10,000 raised invoice, with £300 deducted as fees.
What options are there?
Invoice financing offers various options to businesses, including invoice factoring, invoice discounting, and selective invoice finance.
Invoice factoring allows businesses to access up to 95% of the outstanding invoice value. Factoring companies purchase the invoices or accounts receivable at an agreed amount, taking over credit control and ensuring repayment of the invoices. However, it's important to note that factoring may not be confidential, as providers may not offer a white-label service when communicating with your customers.
Invoice discounting, on the other hand, differs from factoring in that businesses are responsible for chasing repayment, keeping it confidential. You can still unlock up to 95% of the cash tied up in unpaid invoices while managing your own credit control.
Selective invoice finance, also known as single or spot invoice financing, involves a third-party funding provider purchasing a single invoice quickly, freeing up tied-up funds. This option is popular among small and seasonal businesses as it allows individual invoices to be considered separately, based on specific cash flow needs. Selective invoice finance is a funding-only solution, meaning the business is still responsible for managing credit control.
Each option offers distinct advantages and considerations, allowing businesses to choose the most suitable method based on their specific requirements.
"Exchange unpaid invoices for instant working capital."
The differential thing between invoice factoring and invoice discounting is that factoring includes the lender providing credit control services effectively managing the whole of the business's debtor book. Invoice discounting companies let the business maintain their sales ledger keeping the facility confidential from customers. Both factoring and discounting invoice finance are examples of asset-based lending that exchange unpaid invoices for the instant working capital.
Security for you
There is another layer to invoice financing which is recourse and non-recourse invoice financing. Recourse invoice financing means that your business would get no bad debt protection. If A debtor pays too late or fails to pay the invoice your business would be liable to repay the full invoice advance value, including fees. Recourse factoring has an increased risk because within the terms and agreements your business will be required to buy back any unpaid bills.
Non-recourse invoice finance simply means that your business will be given protection against bad or late debt. With this form the increased risk lies with the lender and your business has been safeguarded from the bad debt risk from customers.
What are the advantages?
Invoice finance provides many advantages for a business. It offers a fast and flexible way to manage cash flow enabling you to take on more client work without overstretching working capital. Bridge the gap between paying your suppliers and receiving money from customers alleviating cash flow issues with invoice finance. You will typically expect to receive up to 95% of the invoice value and have very quick access to cash. Usually within 24 hours after receiving the invoices the lender will release the funds. Depending on the type of invoice finance facility you can choose to sell one or multiple invoices as well as decide whether you or your finance provider will manage the credit control process. Making your sales ledger fully accessible to the lender can free up your valuable time from chasing invoices to focusing on what matters to you. However, there is a confidential service available if you would prefer to continue to manage your customer and sales ledger as normal.
And Disadvantages?
As with any financial product, there are disadvantages. Invoice financing is designed for specific businesses. It is only suitable if you provide goods or services to other businesses (B2B), as opposed to the general public (B2C). Your customers may be aware that you are using a facility if you choose to let the lenders manage your sales ledger, which in turn could potentially harm your customer relationships.
Will I qualify?
There are requirements to qualify for invoice financing. The business must trade predominantly by invoicing other businesses for products and services. The business must be UK registered and have a turnover of at least £100,000 and have been trading for a minimum of 4 months. Limited, partnership and sole traders are accepted.
Find the right solution
With a multitude of invoice finance options available, it can be challenging to determine the best fit for your business. That's where Winchester Corporate Finance comes in. We provide clarity and guidance to help you make informed decisions.
As a trusted member of the Federation of Small Businesses, we have helped numerous small businesses across the UK secure SME invoice finance. Our goal is to offer fair and competitive rates that facilitate your business growth.
We understand the risks associated with unpaid invoices, as late payments contribute to a significant number of company insolvencies in the UK. Our mission is to assist businesses in finding the most suitable financial products tailored to their specific needs.
Partner with Winchester Corporate Finance and let us help you navigate the complex landscape of invoice finance, ensuring your business thrives and maintains a healthy cash flow.
"We are experienced in arranging invoice finance solutions for SMEs."
The benefits of choosing Winchester Corporate Finance include us working with a panel of reputable invoice finance providers. We are experienced in arranging invoice finance solutions for SMEs. Our services are free and applying is quick and easy. We will guide you through the process and our team of knowledgeable finance professionals will answer all your questions on invoice finance facilities.
F E A T U R E S
Industry-specific Finance
There are some industry-specific invoice finance facilities. Invoice finance is used by companies that invoice other businesses for their goods and services and certain industries rely on it heavily. Finance facility providers have developed tailor-made products to suit these industries.
Recruitment
Recruitment invoice finance is a valuable tool for recruitment agencies, enabling smooth cash flow management while awaiting invoice settlements from clients. As a recruitment business, you understand the importance of efficient office administration, including vital tasks like timesheet management.
By leveraging the flexible and confidential capabilities of invoice finance, you can ensure uninterrupted operations and focus on growing your recruitment business without financial distractions. With recruitment finance, you have the opportunity to unlock up to 100% of the cash tied up in your invoices, providing immediate access to funds.
The benefits of recruitment finance include no long-term contracts and a straightforward fee structure, making it a convenient and transparent solution for your business. Let Winchester Corporate Finance assist you in accessing the financial support you need to thrive in the competitive recruitment industry.
Creative Sectors
Web design agencies, advertising firms, design companies, and marketing agencies often face the challenge of late-paying clients, which can significantly impact their cash flow. This situation can make it difficult to pay staff or suppliers promptly, leading to operational difficulties such as covering printing costs or hosting fees. Balancing the need to produce quality work while also chasing client payments and maintaining positive client relationships can be a daunting task.
Invoice finance offers a solution to alleviate the pressure of tight cash flow for such businesses. By selling an invoice to an invoice finance lender, funds can be released within as little as 24 hours. Many design agencies opt for invoice finance services that include full ledger management. With this service, the lender takes control of the payment process, effectively assuming the role of chasing payments, while maintaining a highly professional relationship with the original customer.
Winchester Corporate Finance understands the unique challenges faced by web design agencies, advertising firms, design companies, and marketing agencies. We can help you explore invoice finance options tailored to your specific needs, enabling you to focus on delivering exceptional work and maintaining strong client relationships without being burdened by cash flow constraints.
Construction
The construction industry is particularly susceptible to delayed and unpaid invoices, which can have a significant impact on cash flow. Cash flow issues in the construction sector can disrupt the entire supply chain, affecting various firms operating within the industry. This domino effect can create financial challenges for businesses at every level.
Construction invoice finance plays a vital role in helping construction companies maintain working capital and overcome temporary shortfalls in cash flow. By leveraging invoice finance, construction businesses can access funds tied up in outstanding invoices, providing them with the necessary liquidity to keep their operations running smoothly and meet their financial obligations.
Winchester Corporate Finance understands the unique cash flow challenges faced by the construction industry. We can provide guidance and support in implementing construction invoice finance solutions tailored to your specific needs. Our aim is to help construction businesses effectively manage their cash flow, ensuring the stability and continuity of their operations within a demanding and dynamic industry.
No matter your industry sector Winchester Corporate Finance will be able to source your business the individual funding it requires. We offer free impartial advice and will guide you through the process.
Email: hello@winchestercf.com
Tel: 01243 786258
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