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Selective Invoice Finance

Use selective invoice discounting to release working capital

Read on below or talk to an expert

How does it work?

Selective invoice discounting allows you to choose not only which customers you wish to factor in but also which of those customers’ invoices to factor, and when. This could be as little as a single invoice, up to most, but not all of your invoices. Unlike traditional invoice finance facilities, the agreement does not cover all of the invoices meaning clients retain more control.

This kind of facility, once agreed, can usually be used over and over again, as needed. Where there are seasonal fluctuations or growing pains causing occasional cash flow issues, this can be very useful to a business.

The providers will usually allow you to release up to 85% of the value of your invoice. For strong debts, the percentage may increase up to 90% if needed.

Spot factoring

Spot factoring or single invoice factoring is a term used to describe a facility whereby a one-off invoice is factored with no view to using the facility again.

The slight difference between the two lies in the fact that spot factoring involves ‘selling’ the invoice – removing your involvement in the process of collecting payment.

Spot factoring has no ‘tie-in’ meaning that when the transaction is complete, there is no more commitment needed from you.

There are several types of invoice finance facilities with varying levels of flexibility. Our expert advisors will happily talk through your circumstances and find the right invoice finance solution for you and your business.

Selective invoice finance process

  1. The invoice that you need to fund is agreed with the lender.
  2. Once approved, they will require a copy, along with any supporting documents.
  3. The cash will be advanced at the agreed rate, minus the agreed charge for funds.
  4. Once the invoice is settled, you will receive the balance due to you.

Who is selective invoice discounting for?

Selective invoice discounting is an excellent solution for businesses with unpredictable, or stretched cash flow. Where growing pains cause issues or large occasional orders stretch your finances, this can step in quickly to fund the gap.

Most businesses do not see steady and predictable growth, there will always be busy or quiet periods. When one of those times strikes, a solution can be put in place to take the pressure off your cash flow and allow you to focus on your business.

The benefits & drawbacks of selective invoice finance

We have listed the main pros and cons below to help you make the right decision:

Benefits

  • Funds are usually available very quickly, and can usually be drawn within 24 hours of your application.
  • You choose which invoices you fund. If you don’t need to fund a particular one, then you pay nothing.
  • You are not tied into a long contract and can use the service only as required.
  • The charges are easy to understand. A ‘cost of credit’ is agreed upfront and only a single fee charged.
  • Your facility is flexible and can sit in the background as you need it.
  • Funding may be easier to come by than with an unsecured business loan, due to the added security for the lender.

Drawbacks

  • Selective invoice discounting lenders will not usually fund an entire debtor, which can cause problems should a sudden need for lots of capital arise.
  • The cost is usually higher than traditional invoice finance facilities for each pound borrowed. Although, this is usually offset by the selective nature of the facility.

Will I qualify?

In order to qualify for funding, you must be a UK based business and have issued an invoice to another UK based business on payment terms of 30 days or more.

We can fund the following:

  • Sole traders
  • Partnerships
  • LLPs
  • Limited companies
  • PLCs

How is my application assessed?

A large part of the assessment process hangs on the strength of the invoice that you’re looking to fund, and the nature of the works undertaken.

Where the company who are to pay the invoice are highly creditworthy, your chances of success are high. This is due to the fact that the lender is reliant on that business for repayment, not on your business.

This means that if you’ve suffered adverse credit, or your historic accounts do not show strong financial performance, you may still be eligible for borrowing.

What are the risks of selective invoice discounting?

This method of funding is more expensive than full factoring or invoice discounting facilities on an invoice by invoice basis.

The main risk is that you become reliant on regularly funding the majority of your invoices to cover cash flow. Should this happen, it may prove to be an inefficient product, and consideration should be given to the idea of taking out a more permanent facility.

What are the alternatives to selective invoice finance?

When you’re looking to raise cash for your business, the right product for you will depend on a few points, the main ones being:-

  • The security you have available
  • How much you need to borrow
  • How quickly you need the funds
  • How long you need the funds for
  • How often you will need to borrow funds in this way
  • The credit history and asset position of your business
  • The cost of the products you are eligible for

Depending on the above points, the products the may be as suitable or more suitable and are:-

  • Business revolving credit facilities: These allow you to borrow and repay funds as required to control your cash flow. They aren’t designed to be used constantly and may be expensive if they are. The most common revolving credit facility for businesses is the overdraft, although there are a number of lenders offering standalone facilities now. These may be suitable where the person that you have invoiced is not acceptable to lenders, or funds will be needed very regularly at short notice.
  • Unsecured business loans: These can be ideal where a lump sum is needed for a longer term and funds will not be repaid and borrowed again regularly. Due to the lack of security, it may be tougher to qualify for these loans if you have adverse credit registered against you or your business.
  • Asset refinance: Asset refinance work in much the same way as business loans in that a lump sum is provided to you in exchange for regular monthly payments over an agreed term. As security is offered by way of an asset, rates may be lower than unsecured business loans. Again, these are better for longer term borrowing.

Can I retain control of collecting payment?

In most cases, your lender will want to manage the process of collecting payment, although some providers are more flexible.

Where it’s important to you that control is retained, let us know and we’ll only approach funders who will allow you to do just that.