Invoice Finance

Invoice financing typically involves fees and charges ranging from 1% to 5% of the invoice value, known as the discount rate or factor rate. This can vary depending on the volume and value of the invoices processed each month. Generally, businesses that process a small number of high-value invoices are offered more competitive rates than those with many smaller invoices.

The overall cost of invoice finance will depend on several factors, including your business type, customer creditworthiness, the value of your invoices, and the specific invoice finance facility you choose.

Additional Charges:

You may also incur a service or standing charge, which can range between 0.5% to 3% (or more) of your annual turnover. This fee covers administrative tasks such as credit collection and management.

Example of Invoice Financing Costs:

Construction Company X has completed work for a customer and raised an invoice for £10,000 with a 30-day payment term. The company needs quick cash to fund resources for the next project and decides to use invoice financing.

• The company agrees with the lender to receive 95% of the invoice value upfront with a 3% discount rate.
• The company receives £9,500 upfront, with the lender’s fee amounting to £300.
• The remaining £200 will be paid once the customer settles the invoice in full within 30 days.
• 
  

Summary of the Invoice:

• Invoice value: £10,000
• Amount received upfront (95%): £9,500
• Final payment upon full settlement: £200
• Total fees at 3%: £300

Total amount received by Construction Company X: £9,700 from the original £10,000 invoice.

A lot of businesses just don’t have the cash flow required for big asset purchases, which is where asset finance solutions can help. Whether you are financing a vehicle, machinery, or commercial equipment you firstly need to decide which method of asset-based finance is best for you and your business.

• Decide which type of business asset finance meets your needs
• Determine how much cash your business needs to unlock, or what type      of assets you require
• Think about the ideal amount of time you’d like to spend making repayments
• Make an online application to access the best asset finance providers

Maybe you are looking to release cash tied up in an existing piece of equipment or vehicle - in this case then you would look towards straight-forward asset refinancing. Or, you may need access to new business assets in which case you have more choice. There are several ways to acquire the business assets you need without incurring significant upfront costs.

There are three main types of invoice financing:

• Invoice factoring,
• Invoice discounting and
• Selective invoice finance.

Invoice Factoring

Using incoice factoring, UK businesses can access up to 95% of the cash tied up in outstanding invoices. With this option, you effectively sell your invoices (accounts receivable) to a factoring company for an agreed amount.

Unlike invoice discounting, the 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 factoring is not necessarily confidential; many providers do not offer a white-label service when speaking directly to your customers.

Invoice Discounting

With invoice discounting you could still unlock up to 95% of the cash tied up in unpaid invoices, the difference is that 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

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 other invoice finance facilities, 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.