What is Invoice Finance?
The term ‘Invoice Finance’ or ‘Receivables Finance’ is generally used to describe the range of products that release cash from a businesses unpaid invoices. It helps ease a company’s cashflow by removing the time lag between issuing an invoice to customers and receiving payment. A financier will advance funds as soon as an invoice is raised, so a business doesn’t have to wait for payment. Most companies that raise invoices offer 30, 60, or 90 days payment terms to their customers, but in many cases customers take even longer to pay. The primary products associated with invoice finance are Factoring & Invoice Discounting.
With a factoring arrangement, the factor not only provides funding against outstanding debtors, it also provides a sales ledger management service, which includes the credit control function (including the collection of overdue debts). A factoring facility is usually disclosed to the debtor.
As with factoring, invoice discounting offers businesses cash against unpaid invoices. However, an invoice discounting arrangement is normally undisclosed to the debtor. In addition, the client retains control of the sales ledger management. This product is suitable for larger, more established businesses with good sales management and credit control functions. Both factoring and invoice discounting are available for domestic and export debts, although there are usually restrictions concerning which export markets an be financed.
Bad debt protection
A Non-Recourse arrangement, often called bad debt protection, where the risk of the debtor failing lies with the financier, is also available with both invoice finance products.
There are normally two elements to the cost structure of an invoice finance service:
Service fee – a small administration fee linked to client turnover
Interest payment – charged at a small % over bank base rate on the funds advanced
If you are interested in speaking to someone about an invoice finance solution, please Call: 0800 783 9008