If you agree to transfer your unpaid invoices to a third party for a fee, then that’s ‘invoice financing’.
The company that agrees to buy your invoices – an invoice financier – might be an independent specialist or could be part of your bank or another High Street financial institution.
Invoice financing offers you greater flexibility, by providing faster access to capital, but this carries a cost, which can be comparatively expensive.
So, if you are being driven to consider this route by the need to access cash in the short-term, you should consider other finance solutions too: bank loans, peer-to-peer lending, asset-based finance, leasing and hire purchase are all potential solutions to a situation where short-term funds are needed.
We will review your requirements with you and advise if we think invoice financing meets your specific circumstances.
In the UK, two basic types of invoice financing are available, through factoring or invoice discounting.
This usually involves transferring your entire sales ledger to the invoice financier, who will pay you a percentage of the invoice value within 48 hours (usually around 85). They then take on the responsibility for collecting the money owed by your customers.
The financier usually keeps a percentage of the invoice value, to pay for their service, so you will lose that part of your income. Usually, there is a final settlement paid to you for part of the remaining balance, after the financier deducts their fees and interest. The exact amount depends on which invoice financier is used, and the creditworthiness of your customer.
Invoice trading uses an online platform to allow you to obtain finance from individual investors (or groups of investors), in a way that is similar to peer-to-peer lending. It means you don’t have to sell your entire sales ledger to a factoring company.