Invoice finance is increasingly becoming a more popular way to fund a business as an alternative to the traditional overdraft. Unlike an overdraft, which is usually secured on personal and/or property guarantees and set at a rigid limit, an invoice finance facility is secured on sales invoices and will increase as your business grows.
There are facilities to suit most businesses, from new-starts to long-established, from 100k to 50 millon pound turnovers, from those with only UK customers to those trading overseas. As long as you have business customers being sold to on credit terms, then funding may be provided against their invoices.
There are two main types of facility; factoring and invoice discounting. Within these are a variety of options.
Factoring – a service, not just funding
The services available with a factoring facility can free up a great deal of management time, allowing you to concentrate on what you do best. It will also take away the pressures of managing your cash-flow, as the facility will be growing as your business does.
Up to 90% of the value of your outstanding invoices could be made available to you immediately and credit limits will be provided for your main debtors. Credit control & collections services are provided by the factor and an internet based facility enables you to manage the funds available.
There may be the option of the facility being ‘confidential’. It’s also possible for you to do your own credit control if you can demonstrate good procedures.
Invoice discounting, funding with the funder staying at arm’s length
This is normally for companies who have good systems in place. If the company can demonstrate this as well as being profitable, then the facility may be offered as confidential (your customers don’t know the involvement of an invoice discounting provider).
Less management of the facility by the provider is required and so, can prove a cheaper alternative to a full factoring facility.
As with Factoring, up to 90% of the value of your outstanding invoices could be made available to you immediately, credit limits will be provided for your main debtors & an internet based facility enables you to manage the funds available to you. In addition, you will retain control of your sales ledger management
Charges: Two charges apply to the facilities, a service charge for the administration of the facility and an interest charge, which is calculated for the funds you are using at any time. The service charge is calculated as a % of your projected turnover. The % will depend on the turnover and amount of invoices you are raising.
Providers: There are around a hundred providers ranging from high street banks to independent lenders. On the surface, many appear to offer the same facilities but a specialist broker such as Hilton-Baird Financial Solutions, can ensure that you are introduced to the most suitable for your needs.