Invoice finance enables you to release the cash tied up in outstanding customer invoices, so you don’t have to wait weeks or months for payment.
This asset-backed funding solution is suitable for all types of businesses, large and small, that regularly invoice other businesses (B2B) for their goods or services. It offers a fast, flexible and convenient way to manage cash flow and get paid quickly for completed work.
How does invoice finance work? What are the typical rates and fees? Invoice finance calculator The different types of Invoice Finance What is the difference between invoice factoring and invoice discounting? What is recourse and non-recourse invoice finance? What are the advantages? What are the disadvantages? Does my business qualify? Example of business types, scenarios and solutions
Rather than waiting for customers to settle an invoice, the lender will effectively buy your invoice(s) at a discounted rate. You could get an advance up to 95% of the invoice value upfront, usually within 24 hours. Your invoicing method doesn’t need to change, allowing you to carry on with business as usual.
1. Invoice customers as usual for completed work and send the invoice details to the provider.
2. The first instalment, up to 95% of invoice value is paid out to you straight away.
3. Depending on the type of invoice finance you agree to use, credit control and chasing payments can either be handled by yourself, or by the provider.
4. The final instalment is then paid to you on receipt of the customer’s payment, minus any fees and service charges.
Fees and charges will vary depending on a variety of complex factors including your business type, customer creditworthiness, how much you invoice, the value of them and what invoice finance facility you choose to use.
To give you a guide, it will usually cost between 1% - 5% of the invoice value. This is known as the discount rate or factor rate. This can vary based on the amount and value of the invoices processed each month. Typically, companies processing a small number of high-value invoices will receive a more competitive rate than those issuing lots of small value invoices.
You may also incur a service charge or standing charge that can range anywhere between 0.5% up to 3% or more of your annual turnover. This fee covers the administration relating to your account, such as credit collection and management.
Here’s a typical cost example:
Construction Company Ltd has completed work for a customer and has raised an invoice for £10,000 which has a payment term of 30 days. The business needs money quickly to help pay for the necessary resources for the next project and turns to invoice financing.
The business agrees with the lender that they will get 95% of the invoice value upfront with a discount rate of 3%. In this case, Construction Company Ltd will receive £9,500 upfront, and the lenders’ fee would be £300.
The remaining balance of £200 will be paid out to Construction Company Ltd as soon as the customer settles the invoice in full by 30 days.
Construction Company Ltd would receive a total of £9,700 from the £10,000 raised invoice.
Find out the estimates fees and how much you could raise by using our easy to use invoice finance calculator.
Advance Rate %
* Will be paid to you when your client has paid the invoice in full and within the agreed invoice term.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
With invoice factoring, you can access up to 95% of the cash tied up in outstanding invoices. You effectively sell invoices to a factoring company for an agreed amount.
Unlike invoice discounting, your finance provider will take ownership of your credit control and ensure outstanding invoices are repaid on time. Having a factoring company to act as your credit controller removes the time-consuming task of chasing payments and allows you to focus on your business.
It’s worth noting that invoice factoring is not necessarily confidential; many providers do not offer a white label service when speaking directly to your customers.
With invoice discounting, you could still unlock up to 95% of the cash tied up in unpaid invoices, but you will be responsible for chasing the repayments. It is therefore completely confidential; as you manage your credit control, customers will not know that you are using this facility.
Selective invoice finance, also known as single or spot invoice financing works by a business selling a single invoice to a third-party funding provider as and when needed, to release tied-up funds quickly.
With invoice factoring and invoice discounting, companies are required to submit their entire sales ledger, which may prove challenging for small, seasonal businesses. This is not the case with selective invoice finance, as individual invoices can be factored as required based on cash flow needs. This is a funding-only solution, meaning you are required to manage your credit control.
Both factoring and discounting let you turn your unpaid invoices into instant working capital. The main difference is that factoring includes credit control services meaning the lender takes control of the debtor book and manages it on your behalf. Discounting lets you take control of your sales ledger, which keeps the facility confidential from customers.
Invoice Factoring vs Discounting
Recourse invoice finance means that you get no bad debt protection. For example, if the debtor pays too late, or fails to pay the invoice, then your company will be liable to repay the provider the full invoice advance value including fees.
Non-recourse invoice finance means you do get protection against bad or late debts. This safeguards your business and the lender essentially takes on the bad debt risk from customers.
Invoice finance offers an incredibly fast and flexible way to manage your cash flow. Here are some benefits:
Improves your cash flow - It helps alleviate cash flow issues by bridging the gap between paying your suppliers and receiving money from customers.
Receive up to 95% of invoice value - You can typically expect to release up to 95% of the funds tied up in your invoices.
Fast funding - Invoice Finance offers very quick access to cash. Money can be released within 24 hours after receiving invoices.
Sell one or multiple invoices - Depending on the type of facility; you can choose to sell one or multiple invoices and decide whether you or your finance provider will manage your credit control.
No hassle of chasing payments - Giving the lender access to fully manage your sales ledger can help free up your time, leaving you to focus on your business, not chasing invoices.
Confidential service available - You can have the option to manage your sales ledger as normal without your customers knowing.To find out for free if you qualify for invoice finance, please apply online now for a no obligation quotation.
Designed for specific businesses - Only suitable if you provide goods or services to other businesses (B2B), as opposed to the general public (B2C).
Customers may be aware - If you choose a factoring facility, your customers will be aware that you use a facility as lenders will be managing your sales ledger. This could potentially harm your relationship with your customers.
To qualify for invoice finance, you must trade predominantly by invoicing other businesses for products and services. You must operate a UK-registered business with an annual turnover of at least £100,000.
If you do not meet these criteria, we can still help you access the finance you need! Learn more about our range of business finance options and how we can help you find the right funding solution for your business.
Invoice Finance lends itself as a product to those businesses who invoice other businesses for their goods and services. Here are some examples of SME’s who may benefit from invoice financing and factoring services.
Recruitment agencies have to manage to pay temporary workers and contractors while waiting for settlement of invoices. Back office administration such as timesheet management and other specific administration is vital to running a successful recruitment business.
Invoice finance for the sales ledger can be critical for recruitment companies success. It is a flexible and confidential service and can be short term or long term depending on what you need. By utilising invoice finance, you can concentrate on the day to day running of your business without the financial distraction.
Recruitment Factoring can help you release up to 100% of the cash in your invoices with no long term contracts and a simple fee structure which is easy to understand. The service is flexible and can be a one-month rolling contract.
Web design agencies, advertising, design and marketing companies all suffer at some point when it comes to cash flow. The design industry is hindered by late paying clients - almost to the point of it being normal practice. Well, it shouldn’t be, and your small business doesn’t have to suffer as a consequence of late paying customers. Whether you are a freelancer, sole trader or you are a larger agency with staff to pay, a late-paying client can knock your cash flow for six.
You may need to pay staff or suppliers such as printers or hosting costs. And, like so many other agencies you have to juggle chasing late payers while still producing work and keeping the very same clients happy. This is where invoice finance can help you when cash flow becomes tight. By ‘selling’ an invoice to an invoice finance lender you can access essential funds within a day or two. The results of this are clear. You keep your business ticking along which allows you to concentrate on client work and your next important pitch.
Some design agencies adopt invoice factoring and full ledger management. This service is when the lender takes control of chasing invoices on your behalf while maintaining a high professional rapport.
Ultimately it comes down to steady cash flow when running a manufacturing or engineering business. Paying your suppliers on time can mean no interruption to your production, and in some cases, it gives you a better opportunity for negotiating better prices with your suppliers.
Unfortunately larger companies and SME’s often put the smaller firms under financial pressure when it comes to paying invoices. You can take control and engage with the services of an invoice finance company to help improve cash flow to where it needs to be.
Regardless of international territories, geographical areas where communication can be slightly problematic, we can help you overcome any financial logistics.
"Having an invoice finance facility in place allows business owners to take advantage of immediate working capital from raised invoices that might otherwise take days or months to receive. Often clients who take out selective invoice finance are so impressed with the professional service they receive and quick access to funds that they engage with the lender with ongoing invoice factoring services. It becomes a valuable part of their internal business cash flow."
Chloe Mckenna - Finance Specialist