Product Focus: Invoice Finance

Benefits of invoice finance

Key benefits of invoice finance solutions include:

  • Up to 90% of your invoices issued to clients paid upfront
  • Facilities available to businesses of any age including new-starts
  • Bad debt insurance available to protect your business
  • Can be quick and easy to set up
  • Facility sizes can increase as your business grows
  • Facilities can be confidential so your clients are unaware that you are benefitting from finance

Invoice financing unlocks cash flow quickly and can directly address one of the primary causes of cash flow challenges resulting from clients paying slowly. Cash can then be used to fund additional orders, support cash flow , or used for further investment.

There are different types of invoice financing available to suit your needs, with pay-as-you-go options providing a lot of flexibility.

Invoice finance providers typically offer credit control services which can help businesses manage their outstanding invoices and reduce the risk of bad debt or non-payment.

This type of financing can be particularly powerful for businesses that have long payment terms, or those that are growing rapidly and need to manage their cash flow.

What is invoice finance?

Invoice finance is a form of financing that allows businesses to raise funds by using the outstanding invoices that their clients haven’t paid yet as security for finance. It is a type of asset-based lending that provides businesses with immediate access to cash flow, enabling them to manage their working capital and grow their business.

As invoices are used as security for funders, it is an appropriate option for businesses trading with other businesses, however isn’t generally viable for businesses who only sell directly to individuals as their customers.

Invoice financing may enable businesses to offer credit terms to their customers where their competitors cannot, potentially leading to them winning business and growing faster than their peers.

There are several types of invoice finance facilities available as follows:

  • Factoring
  • Invoice discounting
  • CHOCC/CHOCS factoring
  • Spot factoring
  • Selective invoice discounting

One of the key differences between the various types of invoice finance is who handles the credit-control and collections process. With factoring, the finance provider typically will contact your clients for payment whereas with discounting you would be in charge of your own collections process.

When we help clients arrange invoice finance, we ensure that the solution we source is appropriate for your ledger, your credit control process, and ongoing cashflow requirements.

If you already have an invoice finance facility, we can review your terms to ensure you are getting the most competitive facility in the market. Sometimes your existing invoice finance provider will not extend your limit in line with your growth and/or work against your business’ success. We can introduce funders that will align more appropriately with your business’ plans and growth.

Types of invoice finance

Factoring

Factoring is a type of invoice financing where the business sells its outstanding invoices to a factoring company, or a factor, for a discounted price. The factor then takes over the responsibility of collecting the payments from the customers. The business receives a percentage of the invoice value upfront, typically around 80-90%, and the remainder, minus the factoring fee, is paid to the business once the invoice is paid by the customer.

Factoring can be a good option for businesses that need to raise cash quickly and do not want to manage their own credit control and collections. It can be an option for businesses of any age, right from the point of being established.

Invoice discounting

Invoice discounting is a type of invoice financing where the business retains ownership of its outstanding invoices but uses its invoice/debtor ledger as collateral to raise finance. The business can borrow against its invoices, typically up to 90% of their value, and repay the loan once the invoices are paid by the customers. Unlike factoring, the business remains responsible for managing its own credit control and collections.

Invoice discounting can be a good option for businesses that want to maintain control over their relationships with their customers. As you retain control of the credit control process and monies are paid to you by your customers, they are not aware that finance is being raised. This type of facility is often referred to as being confidential.

Typically, businesses need to have a bit more established trading behind them before invoice discounting becomes an option over factoring.

CHOCC/CHOCS factoring

CHOCC (Client Handles Own Credit Control)/CHOCS (Client Handles Own Collections) is a variant of factoring where your clients are aware that you have a financing arrangement, however you are in control of chasing for payment rather than the funder.

This blended approach leaves younger and smaller businesses in greater control of their client relationships, whilst still benefiting from invoice financing. Additionally, this type of arrangement can potentially reduce costs for your invoice factoring facility where you have a large number of smaller invoices to a lot of clients.

Spot factoring

Spot factoring is a type of factoring where the business can choose which invoices to sell to the factor. This can be a good option for businesses that want to raise finance on an ad hoc basis or just for a short period of time to solve a temporary cash flow constraint.

Selective invoice discounting

Selective invoice discounting is a type of invoice discounting where the business can choose which invoices to use as collateral to raise finance. You are still in control of issuing the invoice and chasing up payment but you do not have to finance your entire debtor ledger.

How does invoice finance work?

A typical invoice finance application journey is as follows:

  1. Send us your details: This will include your business’ financials, bank statements and aged creditors/debtors’ analysis and/or any specific invoices you wish to finance.

  2. Discuss your cash flow goals: We will review your details and chat through your cash flow challenges with you to ensure the type of facility we source is the most appropriate avenue.

  3. Select your finance option: We will source the most appropriate solution(s) for you to review the repayment terms and facility particulars. Good working relationships are important for invoice finance so we will look to introduce you to the funder early on to ensure they are a good fit for your business. Once you’ve confirmed you’re happy with a solution we will arrange for documentation to be issued to and signed by you.

  4. Completion: The facility will be set up, often with a large initial advance of cash raised against your outstanding invoices.

Once the facility is established you will raise invoices to customers as usual, but also submit a copy of the invoice to the funder. With invoice discounting, the funder will advance payment against this invoice and you will pay them back when your client pays you. With invoice factoring, the funder will collect payment from your client and pay you the remainder of the balance less their fee upon receiving your client’s payment.

Enquire now

Provide your details below to search for Invoice Finance options that are right for you.

Explore other solutions

Asset Finance

Asset Finance

Whether it’s plant and machinery, media equipment, or even computers and software, lots of your purchasing activity can be financed over many years, enabling the assets to pay for themselves.

Read More »
Bridging Finance

Bridging Finance

Bridging finance is a type of short-term loan designed to bridge the gap between the purchase of a property and the sale of an existing property or a long-term financing solution. They can be essential for investors looking to purchase property from auction. These loans are typically secured against the property being purchased, and can be used for a variety of purposes, including property investment, development, and renovation.

Read More »
Business Loans

Business Loans

There are a wide variety of business loans available, from long-term secured facilities to shorter-term unsecured options and revolving credit facilities. We help businesses identify the most appropriate option to solve their needs.

Read More »
Buy-To-Let Mortgages

Buy-To-Let Mortgage

Buy-to-let finance is a type of mortgage designed for businesses and individuals who want to purchase residential or semi-commercial property with the intention of renting it out to tenants.

Read More »
Commercial Mortgages

Commercial Investment Mortgage

Commercial investment mortgages enable businesses and individuals to purchase commercial property for the purpose of generating a rental income from renting the premises to business tenants.

Read More »
Commercial Mortgages

Commercial Owner-Occupier Mortgage

Commercial owner-occupier mortgages can be a great way for businesses to become property owners and increase stability in their business through ownership of their premises. By using a commercial owner-occupier mortgage, businesses can secure long-term financing solutions and fixed interest rates, making budgeting and planning easier.

Read More »
Development Finance

Development Finance

Development finance is a type of loan that is specifically designed to provide funding for property development projects, such as building new properties or refurbishing existing ones. The lender will provide the funds needed to start the development, which will typically be provided in stages throughout the development process.

Read More »
Development-Exit Finance

Development-Exit Finance

Development-exit finance is a type of short-term finance that is used to refinance a property development project once the development is completed. This type of finance is typically used by property developers who are looking to exit the development project and realize their investment.

Read More »
Invoice Finance

Invoice Finance

Finance that powers business-to-business transactions from small wholesale operations to leaders in global industry. Options available for one-off requirements and whole-ledger debtor book finance.

Read More »
Merchant Cash Advances

Merchant Cash Advance

Merchant cash advances are a form of alternative finance that allows businesses to borrow money based on their future credit and debit card sales.

Read More »
Development Finance

Mezzanine Development Finance

Mezzanine development finance is a popular form of funding for property developers who need access to more capital than is available through traditional senior debt development financing.

Read More »
Property Finance

Property Finance

Buy-to-let landlords, property developers and businesses acquiring commercial premises require specialist bespoke finance. Long-term fixed-rate facilities can protect against interest rate rises.

Read More »
Revolving Credit Facilities

Revolving Credit

A revolving credit facility (RCF) is a type of loan that provides businesses with ongoing access to funds that can be used for working capital, inventory, or other business expenses.

Read More »
Second Charge Personal Mortgages

Second-Charge Personal Mortgage

A second-charge personal mortgage can be a useful financing option for homeowners who need to access additional funds but do not want to refinance their current mortgage. With a second-charge mortgage, borrowers can keep their existing mortgage deal and only borrow additional funds. This type of loan can offer lower interest rates and larger borrowing amounts than unsecured personal loans, making it a popular choice for homeowners who need to access funds for home improvements or debt consolidation.

Read More »
Secured Business Finance

Secured Business Finance

Secured business loans can enable businesses to secure the funding they need at a lower interest rate. A secured business loan is a loan that is secured by collateral, such as property or inventory. Because the lender has collateral to fall back on if the borrower defaults on the loan, they are often willing to offer lower interest rates and larger loan amounts than they would with an unsecured loan.

Read More »
Start-Up Finance

Start-Up Finance

Starting a business can be a daunting task, and financing is a crucial element of the process. Fortunately, there are various financing options available in the UK specifically tailored to start-ups.

Read More »
Trade Finance

Trade Finance

Trade finance is an essential tool for businesses involved in international trade. It provides financing to mitigate the risks associated with these transactions and can improve cash flow, reduce risk, and provide access to new markets. There are several forms of trade finance, including letters of credit, invoice finance, export credit insurance, and bank guarantees. The process of trade finance involves several parties, including the exporter, importer, banks, and other financial institutions.

Read More »
Unsecured Business Finance

Unsecured Business Finance

An unsecured business loan can be a great way for small businesses to secure the funding they need without having to put up collateral. Facilities can be arranged quickly and often have a lot of flexibility to settle the agreement early.

Read More »

Need help finding finance?

Reach out and our experts will assist

Thank you!
Your details have been received and we will be in touch soon.