How can invoice financing help you manage your debtors more efficiently?

Invoice finance is a great facility that really supports businesses that are growing, as the business grows and increases its invoicing the facility grows with it, enabling the business to have steady cash flow.

Invoice financing is using your companies invoices to release cash before the invoice is due for payment by your customers. Like a pre payment but for business invoices

Invoice financing expedites cash flow by letting you advance funds tied up in unpaid invoices. This accelerates your working capital, enabling you to meet financial obligations promptly and operate your business more seamlessly, without the constraints of waiting for debtor payments.

Improved cash flow predictability: Knowing you have cash available from invoice financing reduces dependence on unreliable customer payments, making cash flow more predictable and enabling better financial planning.

There are numerous invoice finance types. Confidential ID, disclosed ID, factoring, CHOCCS, selective invoice finance and also spot invoice finance. The premise of the facilities work the same in that the business advances funds from the lender against an invoice. It is important to note that this is usually on a recourse basis. Meaning that if the customer does not pay then the debt has to repaid by the business. There are few non-recourse lenders and a way to cover the risk is to obtain credit insurance.

I disagree with the last paragraph of the above. Invoice finance on a white turnover basis requires a debenture against the business. Or at least a First charge against the debtor book. Also, a personal guarantee may be required and will actually be non-negotiable within certain sectors such as construction.

Confidential Invoice Discounting means your customers will not know you’re using this facility, unlike factoring where your customers will be aware you are using a third-party to finance your invoices.

A main challenge for businesses utilising invoice finance is moving away from the product. It is a difficult product to exist without planning as the products main aim is easing cashflow and allowing business to access funds earlier from invoices. This tends to mean that the business does not have excess cash to repay a facility fee easily. It is best to have a planned exit and reduce the prepayment over a period of time.

Understand your cashflow and whether you need a full facility. Focus on the debtors and understand whether contractual and whether a ban on assignment clause is within the contracts. I have had clients working with Tier 1 construction firms and also local authorities that have refused to accept the invoice finance facility meaning that the debt cannot be verified. A confidential facility may assist if there is not a clause banning the no action of the invoices.