Invoice Finance
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Invoice Finance is when you use the sales invoices that you have sent to your clients or customers to obtain payment before waiting for them to pay you directly. Inspired Business Vision has many years experience of obtaining finance by way of invoice discounting and factoring and using our large network of contacts can advise which lender may be best for your business. There are generally two forms of invoice financing:

Confidential Invoice Discounting

Confidential invoice discounting (CID) is an alternative way of drawing money against your invoices. However, your business retains control over the administration of your sales ledger. It can provide a cost-effective way for businesses to improve their cashflow.

CID is only available to businesses that sell products or services on credit to other businesses. It is normally only available to businesses with a proven track record and an annual turnover of at least £500,000.

However, it may not necessarily be the cheapest form of finance and will usually require a minimum contract term of 18 months.

How CID works

The supplier of CID will first check the business, its systems and its customers. They may then agree to advance a certain percentage of the total outstanding sales ledger.

You will pay a fee to the supplier of CID, usually a percentage of the value of invoices assigned or an agreed fixed fee, and also pay discount (interest) on the net amount advanced.

The supplier of CID is notified of details of the invoices in bulk. This is often done electronically through downloads of sales day books or listing of invoices.

On receipt of a notification the supplier of CID will make funds available at the agreed percentage rate, for example 80 per cent. This can be drawn by the client as required. As cash is received from debtors it is paid to the supplier of CID, reducing the outstanding balance and generating cash availability to the client for the 20 per cent previously undrawn.

Notifications of further invoices will generate further availability - so the account balance will constantly fluctuate as invoices are assigned, funds are drawn and cash is received. The supplier of CID will recalculate the amount available to the client after every transaction.

Features of CID

  • You collect the debts and do the credit control.
  • Your customers do not usually know about the CID facility, although it is sometimes disclosed.
  • Annual turnover would usually be at least £500,000. The Invoice discounter will review the credit history and track record of your business. They will have strict rules regarding the quality of sales ledger systems and procedures.
  • The CID supplier will check regularly to see that your procedures are effective.
  • You can choose between recourse and non-recourse facilities, determining who is responsible for recouping unpaid invoices.

Factoring

Factoring provides a prepayment against your sales ledger. It allows you to flexibly increase your working capital and improve cashflow.

Factoring is offered to businesses trading with other businesses on credit terms.

The Factoring Company will want to meet you, visit your business, review your financial situation and study your business plan to evaluate your suitability for a factoring facility.

Credit limits might be required - if so, you must agree how they will operate.

After signing an agreement, the factor will typically agree to advance up to 85 per cent of approved invoices.

Factoring is a complex, long-term agreement. It is advisable to think carefully about the financial implications of factoring before entering into an agreement.

How Factoring Works

  • You raise an invoice, which has instructions to pay the factor directly and send it to the customer. Send a copy of the invoice to the factor.
  • The factor makes available an agreed percentage of the invoice for you to draw as you require.
  • The factor issues statements to the customer on your behalf. It operates credit control procedures including telephoning the customer if necessary.

When an invoice is paid by the customer

  • The customer should pay 100 per cent of the invoice directly to the factor.
  • The factor pays the balance of the invoice to you.

If an invoice is not paid, responsibility for paying the debt will depend on the type of agreement - either recourse factoring or non-recourse factoring.

The agreed factoring fee is taken when the invoice is received by the factor. The discount charge works like interest and is calculated against the balance of funds drawn and usually applied on a monthly basis. 

Contact Us now to see how we can help your business with confidential invoice discounting and factoring.


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