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Understanding invoice financing

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What is invoice financing?

Invoice finance is an umbrella term encompassing both invoice financing and invoice factoring, yet there's a key distinction between them regarding the collection of unpaid invoices.

With invoice financing, a business secures a loan against its unpaid invoices, maintaining control over its sales ledger. This means the company is accountable for chasing up outstanding payments.

A notable feature of invoice financing is its confidentiality; typically, the company's customers are unaware of the arrangement, as the business continues to manage its invoices.

Conversely, invoice factoring involves a business selling its sales ledger to a third-party lender, known as the factor. Here, the factor takes on the responsibility of collecting unpaid invoices. Unlike invoice financing, invoice factoring is not confidential, and it's common for the company's customers to be aware of the factor's involvement in collecting their dues.

This fundamental difference in who handles the receivables collection shapes the choice between invoice financing and factoring for businesses seeking to manage their cash flow effectively

What does an invoice finance company do?

The invoice finance company will typically advance up to 90% of the invoice's value and once the customer settles the payment, the company will release the remaining amount, minus any service fees.

Invoice finance companies offer a specialised financial service whereby businesses can access immediate funds tied up in their outstanding invoices. Instead of waiting for clients or customers to settle their bills, a company can sell its unpaid invoices to an invoice finance company for a fee.

This provides the business with immediate cash flow, which can be instrumental in managing day-to-day operations, payroll, and other expenses. The invoice finance company then takes on the responsibility of collecting payment from the debtor.

Invoice finance products

In the UK, you have several choices when it comes to invoice financing. Primarily, these are categorised into three types: invoice factoring, invoice discounting, and selective invoice discounting.

Invoice Factoring

  • We purchase your unpaid invoices and manage the collection process on your behalf.
  • Our service ensures direct communication with your customers for collections.
  • We offer an immediate advance, usually up to 90% of the invoice's value.
  • Upon receipt of the invoice payment from the customer, we'll forward you the remaining balance after deducting our fees.
Find out more

Invoice Discounting

  • We provide you with an advance on your invoice's value, usually up to 90%.
  • Unlike factoring, you maintain control over the collection of payments from your customers.
  • Payments made by your customers are directed to us. After settling the amount advanced, we then send the remaining balance to you, after accounting for our service fees.
  • This method allows you to maintain direct customer relationships, ensuring discretion.
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Selective Invoice Discounting

  • We offer the flexibility to finance only the specific invoices you select, rather than your entire ledger.
  • This provides an option for those not looking for long-term commitments, allowing you to access our services as and when required.
  • As with our other services, we advance a proportion of the selected invoice's value. Once we receive the payment from your customer, the balance, minus our fees, is sent to you.
Find out more

What are the advantages of invoice finance?

Invoice finance offers a range of compelling advantages that can propel your business forward. Some of the key benefits include:

1. Improved cash flow

By accessing a portion of your outstanding invoices, invoice finance injects cash into your business, enabling you to meet your financial obligations promptly and take advantage of growth opportunities. This steady cash flow can help you negotiate better terms with suppliers, enhance your credit rating, and boost overall business stability.

2. Enhanced working capital management

With invoice finance, you gain greater control over your working capital. By accelerating the cash flow cycle, you can better plan your expenses, invest in new equipment or technologies, and pursue strategic initiatives that fuel business growth. The increased liquidity empowers you to take swift action when opportunities arise, giving you a competitive edge in your industry.

3. Reduced credit risk

When you opt for invoice factoring, the responsibility for credit control and collection activities is assumed by the factor. This not only saves you time and administrative hassle but also mitigates the risk of bad debts. The factor's expertise in credit management and analysis can help you make informed decisions about which customers to work with, minimising the impact of late payments or non-payment on your business.

4. Flexibility and scalability

Invoice finance is a highly flexible funding solution that can adapt to the changing needs and growth trajectory of your business. Unlike traditional bank loans or credit lines, which may have rigid repayment terms, invoice finance grows in line with your sales, providing you with the funding you need precisely when you need it. As your business expands, so does your access to working capital.

What is the invoice finance process?

Application

Begin by applying for invoice finance with a reputable provider. You will need to submit relevant documents, such as your invoices, customer details, and financial statements.

Approval

Once your application is approved, the finance provider will assess the creditworthiness of your customers, as their ability to pay impacts the level of funding you can access.

Invoice Submission

After approval, submit your invoices to the finance provider for funding. Depending on the arrangement, you may need to submit all invoices or select specific ones.

Funding

Upon receiving your invoices, the finance provider advances you a percentage of their value, typically within 24 to 48 hours. This provides an immediate injection of cash into your business.

Payment Collection

If you opt for invoice factoring, the finance provider takes over the responsibility of collecting payment from your customers. With invoice discounting, you retain control over the collection process.

Repayment

Once your customers settle their invoices, the funds are used to repay the finance provider. Any remaining funds are then transferred to your business, minus any associated fees or charges.

Is your business eligible for invoice finance?

What are the necessary requirements to qualify for an invoice finance facility?

  • Are you a UK based Small-to-Medium sized business?

  • Is your business invoicing other businesses?

  • You can be starting up, growing or well established. We support many businesses at different stages with their growth ambitions.

  • Do you have a minimum turnover of £50,000 per year?

  • If your business is a new start we prefer homeowners, but if not please still get in touch as we will look at each business individually.

  • If you export, please get in touch as we already support many exporting businesses.

How can an invoice finance facility help your business?

Expand your operations

Invest in stock, machinery or equipment

Employ new members of staff

Fix long-standing issues with cash flow

Example of invoice financing in practice

Seeking expansion

John's Engineering is currently seeking expansion, which involves the hiring of new staff and the procurement of additional equipment.

Cash flow challenges

John’s business is facing a significant cash flow challenge as their customers operate on 60-day payment terms, which has resulted in an outstanding balance of £10,000 owed to John's Engineering.

Invoice finance

To bridge the cash flow gap, John has decided to explore the option of invoice finance. After careful consideration, he reached out to a reputable finance provider who has agreed to advance up to 90% of the value of his invoices as soon as they are raised.

Cash released

Following his decision to proceed with the invoice finance facility, John has begun submitting his invoices to the lender, who promptly transfers 90% of the invoice value to John's account within 24 hours.

Invoices paid

Once the client pays the invoice, the lender collects the payment on John's behalf and deducts the relevant fees. The remaining balance is then repaid to John after the deduction of fees.

Business growth

Through the strategic utilisation of invoice finance, John has successfully improved his cash flow position and can continue to expand his business operations.

Get a quote estimate with our invoice finance calculator

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Please note that costs are an estimate only and are based on the entered values. Your final quote may change once a Business Development Manager has assessed your business in more detail.

Why choose Novuna as your invoice finance company?

6 month trial period

A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.

Digital onboarding

We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.

Client trust account

Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.

No uncleared effects

We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.

Simple pricing

We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.

Award winning service

We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.

Our invoice finance facilities are award winning

Our invoice finance service comes highly recommended by our customers

"The communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll.'

More reviews

We have revolutionised invoice finance in the UK with our digital onboarding process

Invoice Finance FAQs

What is the difference between invoice discounting and factoring?

The difference between invoice discounting and invoice factoring is that with discounting, you retain control of the collection process and stay in contact with your customers directly, whereas with invoice factoring the business sells its invoices to a third party and then the factoring company chases the unpaid invoices and sends payment reminders directly.

Generally speaking, invoice discounting facilities are used to leverage cash from your entire ledger, which means you’ll forward every invoice to your lender, and then settle your debts as you collect from your clients.

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Is Invoice finance in the UK suitable for small businesses?

Invoice finance provides an alternative finance solution to traditional forms of finance such as loans, lines of credit and overdrafts which often come with a multitude of eligibility requirements. The mechanics of providing funding for unpaid invoices to improve the cash flow of a business works the same for any size of business.

In order to be eligible for Novuna Business Cash Flow:

  • Your business has to be invoicing other businesses (not consumers)
  • You can be starting up, growing or well established. We support many businesses at different stages with their growth ambitions
  • If your business is a new start, we prefer homeowners, but if not please still get in touch as we will look at each business individually
  • Your business needs to have a minimum turnover of £50,000 per year
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Are invoice finance brokers regulated in the UK?

Invoice finance services are not currently regulated by the FCA (Financial Conduct Authority). To ensure integrity and a fair service is provided, UK Finance have an industry-wide code of conduct. The regulation of the invoice finance industry would most likely lead to an increase in the costs associated with invoice financing. Not being regulated ensures the costs of invoice financing are kept down for the consumers seeking to utilise invoice finance for an instant cash injection for their business.

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What charges can I expect with invoice finance?

We were the first provider to offer a one fee solution from 0.45% to 5% of your turnover depending on the size of your business. As your invoice finance broker, you can expect:

  • No hidden fees
  • No extras
  • No set up costs

You can use our invoice finance calculator to give you an estimate of price and to understand how much cash you could release back in to your business by using Invoice Finance.

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Why should I use an invoice finance provider instead of my bank overdraft?

Our funding line is very flexible. As your turnover grows so does your access to funds. You don’t need to negotiate new terms with an invoice finance provider. We know that our service is much quicker than a bank so you can access funds almost immediately instead of having to wait days or even weeks.

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What if I don’t want my customers to know that I’m using invoice finance?

We provide a facility called confidential invoice discounting. This allows you to maintain the relationship with your customers, without their knowledge of our involvement. A confidential facility is usually more suitable for businesses with a turnover of over £600,000.

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