We'll help you find the right Invoice Finance facility

 With invoice finance, the lender uses your unpaid invoices as collateral for funding, giving you quick access to a percentage of the invoice value. Typically, payment is made within 48 hours of submitting your invoice, with the amount ranging from 75% to 100% of the invoice value. 

In most cases, customers will make payments into a trust account managed by the invoice financing company, but it will appear as though the account is controlled by you. When the invoice is settled by your customer, the lender forwards on the remaining balance less fees.

Invoice finance is an extremely flexibile working capital solutions, and can be used by businesses trading B2B in order to increase cashflow drastically within the business.

Invoice factoring

Although  they both provide early payment of outstanding bills, invoice financing  and invoice factoring are not the same. Invoice financing uses a  company’s invoices as security for a loan. Factoring agents (the  factor), buy a company’s invoices. They take control of the sales ledger  and provide an advance against each invoice.

Factors typically  advance 75% to 95% of invoice value. After deducting their fees, the  factor transfers the remaining balance to the company when the invoice  is paid by the customer.

The key difference is that in factoring,  the factor is responsible for chasing the company’s customers for  payment. This means factoring is not confidential. Customers will be  aware that the factor has taken control of the company’s sales ledger.  This could be a problem for businesses in debt-sensitive industries,  such as recruitment or law.

Invoice discounting

Invoice Discounting is the simplest type of invoice finance. It involves a lender advancing  you money against unpaid invoices and charging a fee based on the  value. This form of finance is suitable for bigger companies with a  relatively high revenue as it allows them to secure funding against  their entire sales ledger.

Invoice discounting is confidential, so  your customers don’t know you’re using their invoice as collateral.  Your company remains in charge of its own credit collection. It’s also  considered riskier so your lender may require evidence that your  customers pay promptly and you have in-house capacity to chase  outstanding payments.

Spot factoring

Spot Factoring allows you to borrow money against specific unpaid invoices rather than  your sales ledger, so it’s also suitable for companies with at least a  few large customers. The main difference with selective invoice  discounting is that spot factoring is disclosed. You hand over control  of the invoices you choose to finance to the lender who collects payment  from your customer and forwards your company the balance less its fee.  Spot factoring may suit SMEs that don’t have the resources to chase  outstanding payments and are happy to let a lender take the  responsibility on their behalf.

Confidential invoice finance

Confidential invoice finance is a suitable funding option if you prefer your customers to remain  unaware that you’re securing finance against their invoices.

Confidential  invoice finance refers to forms of invoice finance that aren’t  disclosed to your customers. We’ve already described invoice  discounting, but confidential invoice factoring and CHOCs (Customer  Handles Own Collections) are other examples of this type of finance.

CHOCs (Customer Handles Own Collections)

CHOCs, short for customer handles own collections ,  is a cross between invoice discounting and invoice factoring. As with  invoice discounting, you deal directly with your own customers. However,  like invoice factoring, your customers pay the lender instead of your  company, so they know you’re using their invoices to secure working  capital.

CHOCs are suitable if you’d like to maintain a direct  relationship with your client or for early-stage companies that don’t  qualify for invoice discounting, as long as they can prove they have the  in-house capacity to chase outstanding payments. They can also offer a  more cost-effective option for companies with lots of small customers.

To find out what invoice facility is right for your business, contact Vortex Financial on 07749 874 185

Service Fee

The service fee charge on an invoice finance facility is expressed as a percentage of monthly lending through the facility. E.g:

 £10,000 in lending over a a given month, at 1% service fee

10,000*0.01 = £100

Discount Fee / Interest Over Base

The discount fee charge is whats used to calculate the "interest" in an invoice finance facility. It is expressed as a percentage over the bank of England base rate, and calculated over an annual period, even though most invoices are only 30-90 day credit terms. E.g:

Discount fee of 3%, Current bank of england base rate of 4.75%, "total" of 7.75%

7.75/365=0.02% Daily interest.

 £10,000 borrowed over 30 days at 3% Discount = £10,000*0.02 = £200 total cost for funding. 

At 1% Service fee, and 3% Discount fee, £10,000 borrowed over 30 days costs a business only £300

Other Fees

Other fees such as setup costs, late payment fees, and bad debt protection may apply to an invoice finance facility.