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Find out more about Invoice Finance here:
If you want to save time, resource and borrow against late paying or unpaid client invoices, invoice factoring is an ideal solution. With factoring, when you raise an invoice, you can typically receive up to 90% of its value to ease your cash flow pressure. There are various rates and fees available and it’s important to search across top factoring companies for the options most suitable for your business.
When you factor your invoices, you may also get a discreet and professional team of credit control specialists to collect payment of invoices on your behalf. The benefit of this is that your factoring company will chase unpaid invoices, act as your credit control and protect you against bad debt – improving your accounts payable.
We offer a free, no obligation and confidential invoice factoring comparison service to help you compare factoring companies and find the best lender, product and rate for your business. After you’ve read up a bit on how it works, we’ll happily show you some of the options that exist in the market today.
How does Invoice Factoring work?
A typical headache for most finance teams are late payers and it is common for a large portion of your invoice clients to miss their payment terms by up to 60 or 90 days. It’s often in their interest to withhold payment but this creates a cash flow pressure on your business as you patiently wait for the money to arrive. There are a plethora of invoice payment chasing solutions available that can enforce payment terms via calls, emails and/ or letters – but many can be futile if your client’s culture is nonchalant. One of the biggest risks is damaging the relationship by personally hounding or stopping your service – which makes factoring a strong option.
Invoice Factoring works in this way: You raise an invoice with your customer. The factoring company will give you up to 100% of the value of your unpaid invoice in cash immediately. The finance company will then receive the balance when the invoice finally gets paid. You will then pay the factoring company a cost of money.
There are typically two types of factoring service – Non-recourse and recourse.
What is Non-Recourse Factoring?
Non-recourse invoice factoring allows a company to sell its clients’ invoices to a factoring company without the obligation of any invoices being unpaid. Therefore, if any customers default on their late payments or pay their invoices late – any losses are absorbed by the factoring company.
What is Recourse Factoring?
A more common arrangement is recourse factoring, where a company will sell invoices to a factoring company with the agreement that they will buy them back if they go unpaid. This factoring service is generally more affordable due to the sharing of risk of invoice management.
How does Invoice Discounting work?
Invoice financing releases funds from your unpaid invoices to help manage cash flow, while you maintain responsibility for collection of payments. It is an alternative solution to traditional types of business finance like a short-term loan and an overdraft facility, which provides you with instant access to cash tied up in your outstanding invoices. The discounting facility adapts with your business as it changes and grows, making it much more flexible than an overdraft or loan.
Invoice discounting involves a discounting company lending you money against your unpaid invoices at an agreed percentage of their total value (invoice finance cost). You will pay a fee and you retain control of your sales ledger, the relationship with your client and collect your own accounts receivables. When your clients settle their invoices, the funds are paid back to the finance company. Concretely when you use this method you are still in charge of collecting debt from your clients (accounts receivable), but you can arrange confidentially with your invoice financier.
Invoice discounting can start from rates as little as 0.5% as a result of your doing invoice management yourself. You’ll typically be able to access funds within 24 hours and it’s often a good alternative option to unsecured or secured loans and overdrafts.
How much can Invoice Finance (Factoring or Discounting) cost and how do you compare?
Here’s an example of how invoice factoring costs work: If your customer owes you £20,000 and you sell the invoice to a debt factoring company for £18,000 [90%]. The finance company collects the £20,000 debt from the late paying customer on your behalf and pays you the remaining £2,000. You then pay any factoring costs, fees and interest that you have agreed. This means that you get access to your invoice value immediately and then the remainder once the client has paid.
Invoice finance pricing can depend on multiple factors, including the size of your invoice book, also called sales ledger, and the product you choose. For example, discounting can start from rates as little as 0.5% as a result of your doing invoice management yourself.
As with all finance options, not all lenders are the same and these are the factors you need to consider when selecting a lender:
- Whether there is credit insurance cover or not: Can be anywhere between 0.5%-2.5%
- Whether there are personal guarantees or not
- Monthly minimum fees
- Disbursement fees such as refactoring charges and CHAPS fees, that could rack up each month
- Whether split book is allowed or not (where you can pick and choose the debtors you factor)
- Advance rates (1%-100%)
- Any restrictive conditions and concentration limits
- Fees: Can be anywhere between 0.8%-3%
Spot invoice finance, also known as single invoice factoring, spot invoice factoring or selective invoice discounting is also an option if you only want to sell a single or one-off invoice. It is perfect if a business receives single or one-off orders that it may find tough to finance, do not want to be tied into a usual “full book” invoice finance agreement or has a quick cash flow issue it needs to navigate through. You can choose which invoices to factor and save on the ones you know will settle within the expected payment period.
What’s in it for you? Why should you consider Invoice Finance?
There are many reasons why you should consider invoice finance as an option for your business. And like any financial solution, it’s important that you identify your requirements and match them with a debt factoring or discounting partner who is the best fit.
Some benefits of invoice finance:
Access to cash: You can help your business grow by using invoice factoring or discounting to get access to cash quickly and easily. Cash is released as soon as orders are invoiced and is available immediately (typically within 24 hours). This is usually the main reason that businesses seek this solution – to get cash flow or to fill cash flow gaps that may occur between when invoicing a customer for sales and when you actually get paid/ receive payment. The access to funds will allow a business to finance property, growth and manage cash flow and is a an alternative to other finance options like loans and overdrafts. Growth options could be restructuring, hiring, investing in assets, funding payroll and taking advantage of supplier discounts.
Outsource the management of collections and accounts receivable: You can free up your time to manage your business by putting a third party in charge of your sales ledger and accounts receivable. There’s a value in saving time and having peace of mind that factoring companies can give you.
Rates start as low as 0.2% and allow you to extend customer payment terms: Extending customer payment terms may significantly improve relationships and ensure you retain the business. You also have the choice between recourse and non-recourse factoring depending the level of cover you’re interested in. With non-recourse, you’ll effectively shift the risk of default to the financing company.
Customers may also respect finance lenders/ third parties more and pay quickly.
Comparing top invoice factoring suppliers has never been easier. You can get up to 100% of your unpaid invoices, with rates starting as low as 0.2%. However, the typical advance is around 80-95% of your invoice value.
The invoice finance market is very mature and competitive in the UK and allows you to access good discount rates and factoring fees from top finance providers. By using our service, you’ll be able to get tailored quotes quickly and compare the market. We have access to over 40+ factoring companies and it’s just 3 easy steps to get started. And even if you’re already with a factoring or discounting partner, we’ll be able to help you switch (interfactor).
We are highly experienced and only work with trusted and ethical invoice finance companies.
If you’d like to find out if invoice finance is for you, simply fill in the form and we’ll do the legwork to get you the free finance options you need to make an informed decision, with no obligation.