Invoice Finance Reviews

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What is invoice finance?

Invoice Finance is a quick and efficient method of freeing up cash flow to enable your company to expand.  With invoice finance, you convert the value of your outstanding invoices to clients into cash which is released back into the company.  There are a large number of invoice financiers including independent companies and parts of banks and other financial institutions.

With invoice finance, you often have access to the advance value (normally 85%) of your invoice the same day that you raise your invoice.  This gives you the flexibility to offer extended credit terms in order to win business or agree to larger contracts where cash flow can be tight due to upfront costs.  It is effectively more flexible than a traditional overdraft as the facility expands alongside your sales.


Types of invoice finance

There are two main types of invoice finance.

Factoring

With factoring, the invoice finance provider normally manages the collection process themselves.  They run a mirrored ledger alongside your own and their staff perform credit control on your behalf.  This service works great for smaller companies who don’t have the internal resources for managing their own credit control.

Invoice Discounting

Invoice discounting tends to be a confidential facility.  You notify your clients of a new bank account and the facility provider collect payments direct and notify you of the details.  Rather than running a mirrored sales ledger alongside your own, they tend to reconcile just the running balance.  You still perform your own credit control internally, so this service tends to suit larger companies with full time accounting staff.

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Close Brothers explain invoice finance

A case study from Aldermore Bank

The simple 3 step process


Step 1 – Notify your invoice

After raising your invoice to your client, you notify the details to your invoice finance provider and they buy the debt owed by your customer.

This is normally done via an online system and is quick and easy to do.

If you are on a factoring agreement, you will notify details of each individual invoice or if you are on invoice discounting, more often you will simply notify the invoice batch value.

Step 2 – Cash is released straight into your account

As soon as your invoice batch is notified to the invoice provider, they deduct their service fee and make the agreed advance value available to draw down as cash which is normally around 85%.

Example

You raise an invoice in the normal manner for £1000 and notify the financier.  They deduct their service fee and make the advance value of £850 available to draw down straight away.  If you do your invoice run early enough in the morning, the funds can most likely be in your account the same afternoon.



Step 3 – Your client pays the financier direct

Your client pays your financier direct and they release the remaining balance of the invoice to you minus their discounting charge (interest) and any other charges.

You continue to control the credit terms offered to your clients and the financier offers further support and advice with credit checks and internal trading knowledge.

Credit Insurance can also often be offered at discounted rates if and where required.

Example

Therefore in the above example, as the client pays £1000 invoice to the financier, the £150 previously retained is made available for you to draw on, again normally the same day.


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