Invoice Finance

Last updated: 25/11/2024

What is Invoice Finance?

Invoice finance is a financing option that allows you to unlock the value of a customer’s invoices that are owed to your business. Companies that have B2B consumers within the goods or services sector tend to use this type of funding.

There are two main types of invoice finance – invoice factoring and invoice discounting, but invoice finance facilities can also include selective invoice discounting, debt factoring, accounts receivable factoring and spot factoring.

Having to wait for anything from 30 to 90 days for a business to pay for your products or services can be a frustrating process for most business owners and have an adverse impact on cashflow.

Rather than waiting for customers to pay you, our specialist funders can advance you up to 85%-90% up front against the invoice value.

How does Invoice finance work?

Invoice finance works by a business sending clients or customers an invoice for the service/goods provided. Once that is done, the invoice finance provider will send the agreed percentage of the overall payment to the business within 48 hours.

As agreed with the finance provider, the business can choose to either take responsibility and chase payments due or the finance provider will do it – this is the main difference between invoice factoring and invoice discounting.

Once the client has paid the invoice, the total remainder of the invoice is paid to the business, minus any agreed service fees agreed with the funder.

Depending on the company turnover, a minimal service charge and discount charge of typically between 0.75% and 2.5% is added by the finance provider, which covers the lender’s management, collections and administration costs. The interest paid to the finance lenders by the business is based on the amount borrowed.

Different invoice finance options

There are two main types of invoice finance:

Invoice Factoring – This is where the funder takes control of your sales ledger and will contact the customer for payments on your behalf.

Invoice Discounting -This is where you retain control of your sales ledger and will have to contact the customer yourself.

Invoice factoring vs invoice discounting

The difference between invoice factoring and invoice discounting is that invoice discounting is the more private facility available and invoice factoring is a more hands-on, visible facility for the lender.

The better solution depends on what the business prefers.

If the facility needs to remain confidential from the business’s client, then invoice discounting is the right product as it means that the business maintains control of their sales ledger and is responsible for chasing payment.

However, if the business is happy to pass this control and responsibility onto the invoice finance provider, then factoring could be a better solution. This will mean that the provider is responsible for chasing payments, thus notifying the business’s client that an invoice finance facility is in place.

Advantages of invoice finance

One of the many advantages with invoice financing is the increased availability of cash flow.

A benefit to the business is that once an invoice is issued, rather than waiting days, sometimes months to be paid by a customer, a business has the advantage to release up to 95% of the value of an invoice within 24-48 hours.

Invoice financing can be either used for certain areas of the business or for the entire business, and especially useful for securing larger invoices.

Things to consider for invoice finance

Invoice factoring: This is where the funder takes control of your sales ledger and will contact the customer for payments.

Invoice discounting: This is where you retain control of your sales ledger and will have to contact the customer yourself.

Credit score: If you have a lower business credit score, invoice factoring may be the more viable option for you.

Reputation: Using invoice discounting will mean that your customers will be unaware of any arrangements you have.

How to apply for an invoice finance facility

MAF Finance Group can compare finance offerings from a wide panel of lenders to find the best option for you.

If you would like to get a quote or need further information, simply fill in the form and we will contact you. If you want to speak to someone directly, you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at [email protected].