101 Facts About Invoice Finance (2024)

Financing invoices has been around for millennia, so here are 101 facts about invoice finance that you might not know. This list may also correct a few of the myths that we often hear being spread around.

101 Facts About Invoice Finance

So, here's my list of facts about invoice finance:

1. You canget a quote via an app embedded in our website, from one particular provider, in just 60 seconds.
2. It is said to date back to thetime of King Hammurabi of Mesopotamia, some 4,000 years ago.
3. People often assume that the prepayment (typically 85-95%) is all you get. That's incorrect, when the invoice is paid you get the balance with the only deduction being the fees for the transaction.
4. Invoice discounting is another name for a type of facility that only provides funding without any credit control service.
5. Conversely, factoring is the name for invoice financing that includes credit control services.
6. There are over a hundred different UK invoice finance companies.
7. It's not just limited to the UK. These facilities are provided all over the world.
8. UK Finance is now the trade body of which most of the larger providers are members.
9. The UK Finance body has its own Ombudsman process to adjudicate issues between its members and their clients.
10. We have written aninvoice finance guide that contains everything you need to know about this way of improving your cash flow.
11. Users of these facilities are often referred to as "clients" rather than "customers.
12. Non-recourse facilities include bad debt protection as an additional extra.
13. Specialist payroll finance facilities exist that are tailored to the needs of recruitment agencies.
14. Recourse means the period after which the client has to repay any advance should the customers not pay (unless they have non-recourse protection).
15. Facilities can be "selective" where the client picks invoices to get funded, or whole turnover - encompassing all invoices.
16. Many banks have their own receivables financing arm, however, there are also lots of independent providers.
17. Our research suggested that 87% of users said that these facilities had enabled their growth.
18. We found a concentration of usage amongst companies that were growing at more than 20% per annum.
19. Construction sector transactions can also be funded, normally at circa 70% prepayments.
20. Some funders provide 100% prepayments against invoices (less their fee).
21. You can get an "in case of need" facility even if you don't need to draw money down at the moment. This can be a good way of recession proofing your company.
22. You can still get factoring even if you are in a CVA (Creditors Voluntary Arrangement) or your Directors are in IVAs (Individual Voluntary Arrangements).
23. Our record for the fastest payout is just 7 hours between initial contact and funds appearing in the client's bank account.
24. Many funders will incentivise new clients to switch to them by helping pay any termination fees.
25. We found that 98% of users we surveyed said they would recommend these services.
26. On average clients use these services for just over 5 years.
27. Improving cash flow is perhaps the biggest benefit of using a facility. You no longer have to wait for customers to pay before accessing that money.
28. Some providers offer facilities where your whole sales ledger uploads automatically in the background from your accounting package.
29. A facility can be "confidential" such that there is no assignment clause on your invoices and any contact with debtors is made in the name of your company.
30. Stock finance can be used in conjunction with most invoice funding facilities.
31. These facilities are predicated upon an "assignment" of the underlying debts. This is a way of transferring the rights associated with a debt to another party.
32. There are Islamic versions of these products that comply with Islamic religious requirements.
33. Most invoice finance brokers don't charge you to use their services, instead, a commission is paid by the funder if you proceed.
34. The funds raised can be used for almost any purpose including paying off tax arrears.
35. You don't need to have a good credit rating to use these services. Companies with CCJs and prior failures can still get access to funding from this source.
36. Pricing can be by means of a single fee.
37. Not all funders require personal guarantees, some don't.
38. In some cases a facility can be terminated without any notice, in other cases, there may be a termination period.
39. Normally, you don't just get funding against new invoices - you can raise money against your existing sales ledger.
40. You can use the invoices of a target company to finance its acquisition - few people are aware of this innovative way to raise acquisition capital.
41. Export facilities provide funding and collection services in respect of overseas debts.
42. Facilities with credit control often utilise specialist debt collection teams that can often improve your debt turn, increasing cash flow.
43. Our research suggests that as many as 1 in 5 £1M+ turnover companies may be using this type of funding in the UK.
44. This is one of the few types of business finance that is available to new startup companies that do not have any track record.
45. In one study, we found that 78% of users hadn't checked their prices in the last year.
46. According to our research, compared with businesses generally, the usage of these facilities amongst recruitment companies isperhaps 20 times higher.
47. There are specialist facilities for car body repairers. They normally invoice crash repairs to insurance companies and as the work is signed off 100% funding can be given (less the fee).
48. There is one facility called CHOCs. It stands for "Customer Handles Own Collections" and means that you do your own credit control.
49. If an existing provider terminates your facility, there is often an alternative provider that will take you on - even if you have breached your existing facility.
50. An outsourced credit control service is optional. You can retain the function in-house or use the funders team to take this off your hands.
51. Payroll management is a bolt-on that takes over the running of your staff payroll paperwork. Many staff agencies use this to reduce their workload.
52. Not all providers charge the same. We have found swings between the cheapest and most expensive quotes for a client of 270%!
53. A disapproved account is one that will not be funded. Not all providers take the same view - an alternative provider may be able to fund that account.
54. Not all funders charge minimum annual fees.
55. If your projected turnover is much higher than your actual turnover, ask for that to be taken into consideration in your costing. It can make a huge difference.
56. Receivables finance is probably a better umbrella term than either invoice finance, factoring or invoice discounting. However, outside the US it is not the most common term of reference.
57. If you use trade finance to pay suppliers, invoice financing can be added to grant you an even bigger credit period. The facility effectively repays the trade finance whilst granting you a further credit period before your customers pay.
58. Financiers refer to "discount fees" instead of interest which is a technical difference driven by the legalities surrounding these facilities.
59. These are normally revolving facilities. This means that as prepayments against old invoices are paid off, new invoices give rise to new prepayments such that the facility can be said to "revolve".
60. Your previous history is often not a concern with this type of funding as it is predicated on the value of the invoices. We have heard of people that have been to jail still being able to qualify for a facility.
61. This type of financing is often used as part of a rescue package to turn around a failing business.
62. A trust account is a bank account in your name that is controlled by the funder. It allows you to keep your funding arrangements confidential from your customers.
63. Reverse factoring (also called supply chain finance) is where a big buyer arranges funding for all their suppliers from a single funder. This can give those suppliers access to preferential rates.
64. Getting a quote doesn't normally involve a personal credit search.
65. The most common type of fraud within this sector is someone raising invoices for sales that don't exist. These are called "fresh air invoices".
66. This type of funding is often more generous than that available through an overdraft or loan. This is because of the enhanced risk position of having the book debts as underlying security, especially where the funders are undertaking the collections.
67. You can normally qualify for these facilities even if you have been turned down for an overdraft or loan.
68. A disclosed facility is one where your customers are aware of the funder's involvement. There are confidential options if you would prefer.
69. Some funders are prepared to finance against staged invoicing, for example, in the construction sector.
70. You can get funding against a single debtor, but not from every provider.
71. Some providers will finance a single invoice with no requirement for you to ever use the arrangement again.
72. There are standard client transfer procedures between members of UK Finance.
73. If you have been declined by one or more funders, don't give up - others may still be able to help you. All funders have different risk criteria that they apply. Some specialists in helping companies that are struggling.
74. Applications for payment are used instead of invoices by about three-quarters of construction firms. Specialists will finance applications for payment, even if they are not yet certified.
75. Funding limits control the funding to particular debtors. Different funders will grant differing limits. Often it pays to search around the market if you have restrictions.
76. A prime debtor limit may control the amount of funding granted against your biggest debtor(s). However, a different funder may grant a more relaxed limit.
77. Overpayments are when a funder provides more money than you are due according to your funding formula. This can be helpful when cash is tight.
78. Spot factoring is just another term for selective factoring. This means you can choose the invoices to be submitted for funding.
79. CID means "confidential invoice discounting". This is a facility where you continue your own credit control but you still get your invoices funded. The whole facility is "confidential" so your customers don't know you are using it.
80. An assignment clause is a short paragraph placed on your invoices telling customers that the debt has been assigned to a factoring company. Some facilities don't require this.
81. Typically business development staff are employed by funders. They come and visit you and make sure everything goes smoothly. However, some funders are platform-based.
82. The level of funding grows in line with your turnover. The more invoices you raise, the more prepayments become available to draw down.
83. There may be a payment ceiling on your account but this limit can normally be increased if you outgrow it.
84. Awaiver may be required if your bank already has a charge that encumbers your book debts.
85. Most providers will connect you with a Relationship Manager who is responsible for making sure you get the service you need and that your facility runs smoothly.
86. Often financiers will perform a survey prior to releasing funding. This can be handled remotely but often involves a short visit to go through your accounting records and discuss your needs.
87. Some providers have apps that you can use to manage your account. Often these include basics like being able to request that funds are sent to your bank account.
88. You don't have to use your bank for your invoice finance. Many customers prefer to use a different provider.
89. These facilities are popular with fast-growing businesses but also with those that are struggling.
90. Not all prices are directly comparable. Sometimes there are several different categories of fees. You need to be careful when comparing offers.
91. Just comparing providers based on the fees is often a bad idea. The products and service levels offered can differ and often be more important than just the cheapest price.
92. Some clients use the prepayments to negotiate discounts with suppliers as they can stop taking trade credit.
93. Brokers are involved in the UK market that can search around for the product you need. Often they can get preferential rates and offers.
94. Searching for the "best factoring company" might not be a wise idea. Some online articles may list only those businesses that have paid to be included.
95. A lot of companies tend to commence at the end of the month. Often they need funds to meet their payroll.
96. Temporary staff placements are one sector that is highly suited to this type of funding as timesheets often evidence the underlying debt.
97. People sometimes use these products to support management buyouts and buy-ins.
98. These services can be used to finance pre-pack acquisitions from Administrators. This means you can buy assets from the Administrators of a failed company.
99. There is no single provider that is better than all the others. Often it's a case of finding those that are able to offer to fund and then comparing pricing. However, other factors such as service levels can be vitally important.
100. Using factoring, with a credit control service provided, can mean that you don't need to employ credit controllers or undertake that work yourself.
101. If you receive a large order you can use these products to provide the working capital to accept and deliver against that order. You don't need to turn work down because of cash flow constraints.

Wow, what a list! There you go, that makes 101 facts about invoice finance.

By Glenn Blackman