Invoice Finance: Solving your cashflow challenges with immediate payment

If you're looking for an invoice finance agreement, speak to Rangewell today.

What is invoice finance?

Invoice finance is when a lender uses an unpaid invoice as security for funding, which quickly gives access to a percentage of that invoice. Sometimes funds can be cleared within 24 hours. The amount of money a lender will provide is based on its own risk criteria. 

How does invoice finance work?

You'll issue an invoice to a customer with invoice finance, and then you'll receive a percentage of that invoice value as a loan from the lender (invoice finance company). Payment will usually be made within 48 hours (even 24 hours) of submitting the invoice. The sum will typically vary from 75% to 95% of the invoice value. You'll be in control of your sales ledger and will still be responsible for chasing your customers for payment. 

Customers will submit their payments into a trust that the invoice finance company will control, but the account's appearance will be held by yourself. The customer will assume they're paying you and not the lender. Once the loan is repaid, the lender will deduct the interest and fees, and the balance will be transferred to your bank. Typically, the customer will never know that you used the invoice as security for a loan in most cases.

Invoice financing works in the same way as a revolving credit line or a series of short-term back loans. Unlike other types of lending, the borrower will not need to provide any collateral assets. Owners and directors aren't required to supply a personal guarantee either.

The different types of invoice finance

There are two types of Invoice Finance:

Invoice Factoring

If your business has a turnover of over £25,000 you may be interested in factoring. This allows the lender to approach the client and collect the debt. This saves you time spent chasing payments and lets you have the support of an experienced credit control team to take care of every aspect of your debt collection.

Many providers offer the option of Bad Debt Protection as part of their service, which means even if your customer goes bankrupt or for other reasons fails to pay, you don't lose out.

Invoice Discounting

If you already have a credit control facility and your turnover is £100,000 or more, invoice discounting might be appropriate. Once you collect the debt from your client you return the advance to the lender. This can be disclosed or undisclosed - which means you can choose whether you tell your clients you are using invoice discounting or not.

How Rangewell can help you find the invoice finance deal you need

There are many invoice finance providers and the costs and charges they apply can vary.

What's more, some providers specialise in certain business sectors. To get the invoice finance arrangement that's right for your particular business, you need expert help.

At Rangewell, our team of business finance experts work with you to get to know your business and understand the kind of arrangement and features you need. They can help you find lenders who work in your sector and secure the most competitive deal, complete with any extra services – such as bad debt cover – that you require.

We've helped many of our clients to make the most of the benefits of a range of invoice finance options - including single invoice finance, invoice discounting or whole ledger finance - along with other solutions such as stock finance and working capital financing - by helping them find arrangements tailored to their business.

Call us to find out how invoice financing services can mean an end to your business cashflow worries of unpaid customer invoices – and help fund the growth you want and access to cash you need!

Invoice financing vs invoice factoring: What is the difference?

Although both allow early payment of outstanding bills, some key differences are that invoice financing uses company invoices as security for a loan. Factoring agents will buy the company's invoices. They will then take control of the sales ledger and provide an advance against each invoice. 

Factors will advance 75% to 95% of the invoice value. After fees are deducted, the factor will transfer the balance to the company when the customer has paid the invoice. 

The critical difference is that the factor will be responsible for chasing the company's customer payments in factoring. This means that factoring is not a confidential process. Customers will be aware that the factor has control of the sales ledger. This may be an issue for businesses in debt-sensitive industries, such as recruitment or law.

What are the advantages of invoice finance?

Invoice Finance can help power your business growth. If you have to wait to get paid, a new customer with a big order can actually be a problem – because you don't have the cash to pay for the stock or staff you need.

With Invoice Finance, you know the money will be in your bank almost as soon as you issue an invoice. The more work you do, the more cash you will have to call on.

What are the disadvantages of invoice finance?

You should be aware of some disadvantages before making an informed decision. 

Invoice financing is designed to solve to issue of insufficient cash flow. Suppose you have customers that pay your invoice on time. This form of finance may not help. If you want to raise capital to buy new machinery, other forms of finance better suites will be used.

It costs more than other finance types. You should get quotes from multiple invoice finance providers to compare costs.

Customers may know the arrangement is in place, which could damage the relationship you have with those customers. 

If you sell products or services to the general public, this form of finance may not be helpful.

How much does invoice finance cost?

The fees involved often called the discount rate, are reasonable. The industry average varies between 1.5 - 5% of the total value of the factored invoices every month.

Does my business qualify for invoice finance?

Some criteria need to be met when applying for an invoice with lenders.

Your business will need to deal with B2B and typically raise invoices for payment.

A minimum turnover threshold is generally required of around £50,000.
 
You'll need proof of your accounts and a good business credit report. 

You'll likely need credit and affordability checks when applying for an invoice finance loan, your lender will have set criteria that you'll need to adhere to, and this will differ from lender to lender.

How can invoice finance be used by businesses?

Invoice finance for construction

Late invoice payment, payment delays and outstanding customer invoices in the construction industry are widespread and can cause major issues. Wait times can be even longer on a large scale or government-funded projects. As a result, small and medium-sized construction companies rely on invoice finance to pay workers, buy material, and meet deadlines to ease the burden. 

Specialised invoice finance providers such as Rangewell can offer bespoke payment options for the 'stage method' of construction contracts and the enhanced risk and length repayment times.

To find out which type of invoice finance will work for you, get in touch today! We can also explain asset-based lending if you're thinking about that as an option. 

Invoice finance for recruitment agencies  

Recruitment is a people business, and people are their best asset in recruitment. However, people cannot be used as security for a business loan without sufficient hard assets as collateral. As a result, small and medium-sized businesses may struggle to get traditional business funding. Invoice finance can help to fill the gap. 

Invoice financing and invoice factoring for recruiters eliminates the lengthy wait between raising invoices and client payments.  

To find out which invoice finance facilities are available to you, speak to Rangewell today.

Rangewell's experts provide invoice finance solutions

Rather than having to wait up to 120 days for an invoice to be paid, it lets you take up to 90% of the cash tied up in your unpaid invoices immediately. The remainder will be paid to you, minus fees, once the customer settles the outstanding balance.

Invoice financing provides an ongoing credit facility that protects you against late payment – because it ensures you get paid fast even when customers are slow.