
If you didn’t know before, you know now…
+ What is Invoice Finance?
Invoice Finance is the generic term that encompasses both Factoring and Confidential Invoice Discounting. Invoice Finance provides cash against invoices that are owed to you and bridges the working capital gap.
+ How does Invoice Finance work?
After delivering goods, or performing a service and you’ve raised an invoice, this is ‘assigned’ to the invoice finance company and a pre-agreed % of the invoice value is paid to you. The % depends on many things, including the sector you’re in, the financial strength of your business and how robust your paper-trails / proof of deliveries are but is typically 80-90%. In some cases it is possible to get 100% advance but typically only for short periods of time.
+ What is the process?
After we have worked with you to select the best lender or lenders, the lender will then perform their own due diligence. This will encompass checking your paper trails (because a proof of delivery, or a signed time-sheet is evidence that the work has been done), checking whether your HMRC payments are up to date (don’t be alarmed if they aren’t as many lenders will still lend), and checking whether you raise many credit notes (as this can reduce the value of your sales ledger). Once this has been performed the lender’s representative will put your case ‘to credit’ to get an answer. Once the facility is agreed, documents need to be signed (we can help review them with you), and a telephone verification of your sales ledger is done. If factoring this will be done by the factoring company. If it’s a confidential facility this can often be done at the sign-up meeting by listening to your / your book keeper / FD do verification calls with your own debtors. We will be there to assist throughout this process as our MD, James, has been working for invoice finance companies for over 20 years.
+ What sort of companies use invoice finance?
Lots! Typically most businesses selling goods or services to other businesses, and invoicing after the work has been done / deliveries made are eligible. Invoice finance is particularly helpful for new start businesses and those experiencing or predicting high-growth. It can also be used in turnaround / business restructuring.
Many sectors are particularly suitable for invoice finance and include:
- Temporary Labour Hire
- Haulage / Logistics
- Wholesale
- Manufacturing
- Engineering
- Printing and Packaging
- Plant Hire
- Construction
+ What is construction finance?
Many construction companies, and those working in electrical contracting raise applications for payment rather than invoices. Invoices are more secure for funding against than applications, largely because the debtor can often dispute the amount applied for (until they are certified), and quite often the amount paid is lower than the original application.
Construction Finance companies understand this, and can still provide cash against uncertified applications. Depending on the nature of the work, the % advanced will vary from 30% to 70%.