Invoice Finance

Though the terms 'invoice discounting', 'invoice finance' and 'factoring' often get used interchangeably, to be technically correct the term 'Invoice Finance' refers to any means of finance that uses the invoices you raise to your customers to generate cash, namely Invoice Discounting and Factoring, each of which works very differently:

Invoice Discounting

• The finance arrangement remains confidential and your Debtor never knows about it
• Finance is usually provided by a bank
• Up to 90% of the invoice is available a few days after you raise the invoice
• You retain control of your sales ledger
• Once the facility is arranged the finance available grows in line with your business without need for constant renegotiation (as would be the case with a Bank overdraft)
• Invoice Discounting is aimed at larger businesses and generally only available to companies with a turnover of £500k+

Factoring

• Here you "sell" your invoice to a factoring company for an agreed discount
• They then contact the Debtor to receive payment in full
• Factoring can be both Recourse (the Factor can come back to you if a debt isn't paid) or Non-Recourse (if a debt isn't paid the Factor carries the loss)
• In essence, these companies are providing a finance, ledger management and debt collection service
• Not only does this improve cash flow but it also reduces overheads
• However a fee is charged in addition to an agreed finance discount on the invoice value
• One thing to note is that a Factor may be able to provide you with valuable credit information about your customers
• Factoring is generally available to companies with an annual turnover of £50k+ but some factors will consider start-ups

In both cases the bank/finance company will likely want to visit your premises, learn about your business and your credit control procedures to evaluate your suitability. Such checks will also be carried on periodically too.

Fees are in the form of an annual management fee (0.75-2.5% of turnover) and a per transaction charge reflected in the discount applied to the invoice (1.5-3% over Base rates, charged daily). Generally, Invoice Discounting has lower fees as you continue to manage the sales ledger and credit control yourself, and with Factoring the security that comes with Non-Recourse factoring also incurs a credit charge making it more expensive than Recourse factoring.

For more information or to determine which is best for you, just fill in the form opposite and one of our Commercial Fnance team will give you a call to discuss your options.