Invoice Finance: How Does It Work in the UK?

Invoice Finance: How Does It Work in the UK?

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ABC FinanceInvoice financeHow Does Invoice Finance Work
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in invoice finance

Invoice finance is a key tool for UK business owners who are looking to improve their cash flow. It allows you to borrow money against your unpaid invoices and can be crucial in taking a cash strapped company into a cash flow positive, growing business.

In this guide, we break down what invoice finance is, how it works and how to get the best deal.

What is invoice finance?

Invoice finance is a business finance product that allows business owners to release cash from their unpaid invoices.

It is a product that is designed to improve business cash flow by speeding up the cash flow cycle of companies that accept payment on delayed payment terms.

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How invoice finance works

There is some difference between invoice factoring and invoice discounting, which both work in slightly different ways. That said, in the UK, invoice financing works as follows:

  1. You undertake your normal business activities and invoice your client for the goods or services rendered, once they’re delivered.
  2. You send a copy of the invoice to your invoice finance lender as soon as it has been issued.
  3. They then release funding at the agreed level, set as a percentage of the amount invoiced – this is usually between 80-90%.
  4. You wait for the invoice to be paid by your client. Depending on the facility taken, either your company, or the lender will handle credit control and chase payment as due.
  5. Once the invoice is paid, you receive the remaining funds minus any fees or interest due.

Read more – What Are The Pros And Cons Of Invoice Finance? or Invoice Finance For SMEs.

How can I get the best deal?

The easiest way to get the best deal on an invoice finance facility is to use our online platform. It allows you to input your business details and your requirements.

Lenders then compete for your business, offering you the best available terms through the platform. When you’re happy with one of the available options, you can choose to discuss it further and engage in conversation with the lender direct.

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Why wouldn’t I just approach a lender direct?

When approaching a lender direct, it’s very hard to know if you’re getting the best deal unless you speak to every lender out there (which would clearly be very time consuming).

There, you have to consider the time taken to negotiate the deal to get the best possible terms. We cut that out by allowing lenders only one shot to offer the best deal and don’t give consent for them to contact you unless you choose to engage with them.

Why wouldn’t I just use a traditional broker?

There is no centralised source of invoice finance deals, and each offer is bespoke depending on your business and requirements.

To give you the best chance of getting the best deal, many brokers will just pass on your phone number to multiple lenders, meaning you will have to take multiple calls and sift through offers yourself.

Are there different types of invoice finance?

Yes, there are 2 main types of invoice finance – invoice factoring (also known as debt factoring) and invoice discounting (often known as confidential invoice discounting). Let’s dive into each one in more detail:

  • Invoice factoring – Under this type of agreement, your funder chases all of your invoices for you, payment goes to the factor and they pay the balance to you. This can save you money on credit control, but does mean that your customers will know that you’re using factoring.

Invoice discounting – Invoice discounting allows you to retain your own credit control, meaning your customers will be unaware of the facility. You retain more control over your sales ledger and in some cases can choose which invoices you wish to fund.

Which businesses can benefit from invoice finance?

Any business that accepts payment in delayed terms can benefit from invoice financing. Industries that often use invoice finance include recruitment, manufacturing, haulage and marketing.

Each has their own specialist product with specialist features – recruitment invoice finance, manufacturing invoice finance, print invoice finance and transport invoice finance.

If you operate on delayed payment terms and need a boost to your cash flow, try our online invoice finance tool now to get the best deal.

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