Invoice Finance

Factoring

Typically used to release funds which can be used for any legitimate purpose in your business.

When you invoice your customer, you assign the invoice to your Factoring Company eg the invoice is stamped advising your customer to make their payment not to you, but directly to the Factor. You provide a copy of the invoice to your Factor, who purchases it from you and advances funds to your business typically at 80% of the value of the invoice. The Factor then waits for payment from your customer.

When the invoice has been paid, the Factor will pay you the balance minus their fee which is typically 1.5% to 12%

The fee is determined by several criteria:

  • The credit worthiness of your customer
  • The length of time in which your invoices are paid
  • The monthly factored volume

Invoice Discounting

Invoice discounting is very similar to invoice factoring in so much as you have funds advanced to you based on the value of your invoices. However, the process is confidential and your customers are completely unaware as they make their payments directly to you, not the discounting company. Also the Invoice Discounter will require security and possibly personal guarantees.

Instead of supplying copy invoices, you supply the Invoice Discounter with a record of the invoices raised. Funds are then advanced to you, typically at a rate of 80% of the invoice value. It remains your responsibility to collect payments from your customers and to bank them in the account of the Invoice Discounter.

The Discounting company will run a copy ledger based on the information provided by you, and will wish to carry regular audits of your business in order to ensure that they are secure.

Again, as with factoring, the funds released may be used for any legitimate purpose within your business.

Receivables Funding

Allows early release of cash against future contractual income.

On day one of the agreement, the lender advances a percentage, or even the whole, of the total income expected during the term of the contract. e.g. Company A has a contract with institution B to provide goods or services over a period of five years, for a payment of £1 million per year. Total contract value £5 million.  The lender advances £4 million on day one, to be repaid over the term of the contract. The loan is secured on the contract itself.

The capital released may be used for any legitimate business purpose, including the expansion of the company’s staff and infrastructure, thus enabling it to take on and fulfill the said contract.

The company’s assets are left unencumbered and free for any other finance arrangements.

For a no obligation discussion or more information on any of the above, call our enquiry team on 0800 085 1706,  we’ll be happy to help.