We provide Invoice Financing
Invoice financing is a common form of business finance where funds are advanced against unpaid invoices prior to customer payment. Invoice finance houses include banks, alternative investment providers and private lenders, used by businesses who trade both domestically and globally.
There are two types of invoice financing methods; discounting and factoring.
Invoice discounting can be used for many reasons. It is usually the chosen form of financing where an established business is growing and has a specific customer or a number of invoices that they would like to raise finance against. However, this may not be on all their customer accounts and may not be on all invoices in relation to one specific customer.
Invoice discounting is relevant where a business has a number of customers and invoices are raised to those customers. Typical businesses have payment terms of 30, 60, 90 or 120 days; based on what is agreed. The customer will then have a certain amount of time to pay a company for an invoice that is issued. In the event that a master invoice discounting facility is entered into, then it allows the company to discount invoices with specific customers and up to the maximum value levels that are agreed.
Benefits of invoice discounting
It is much simpler than a standard business loan, in terms of process and security offered. A business loan may require assets and other elements as security, but an invoice discounting facility will concentrate on the value of the invoice and sometimes the insurance backing of that facility. Invoices can also be discounted on a confidential basis, depending on what is agreed with funder. Therefore, the customer would not know that there is a third party funder involved. A business will also have the flexibility of deciding when they discount invoices, which can match up with their funding requirements.
Invoice factoring allows a business to grow and unlock cash that is tied up in future income, so that it can re-invest that capital and time is not spent collecting payments. Thus, there is removal of the unpredictable nature of waiting for payment so that revenue can be booked and capital is then available to spend.
Invoice factoring is most typically used where the funder manages the customer collections and ledgers of the business. This allows them to have more control and most invoices are discounted when they are sent out. It is typically used with smaller businesses who have little or no credit control. However, the industry, size and growth trajectory of the business will all be looked at.
In simple terms, a company will send out an invoice to a customer, who will have pre-agreed payment terms. These are usually 30, 60, 90 and 120 day payment terms. A finance company (the factor) will look at the strength of the customers, the borrower and further possible security offered. Depending on the business, they may take over an element of the finance function from the business and advance a proportion of the funds (in relation to the invoice value) to the company soon after invoices are sent out. Usually, the factor will then work with the end customers to collect payments, remove their fees and send the remaining income onto the company.
As invoices are raised, the factoring company will provide a percentage of the face value of the invoice to the company e.g. 85%. Depending on the set up, the factoring company will then collect the debt from the customer, remove their fees and send the remaining funds onto the company.