Navigating Invoice Finance: Understand The Jargon

The finance world is filled with complex terminology and this jargon serves as essential shorthand for finance advisors, business owners and funders.

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In today's fast-paced business environment, quick access to funding is crucial. As a result, many SME owners are turning to alternative finance products over traditional bank loans.

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The stringent underwriting and 'tick box' lending processes of conventional providers are driving business owners to seek alternative funding options to achieve critical business goals.

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However, securing finance can be challenging, especially when faced with industry-specific jargon. Terms like "invoice finance" and "factoring" can be intimidating but understanding them can empower you to make informed decisions about your business's financing options.

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Initially, you may feel overwhelmed, but with time and knowledge, you'll become familiar with these terms, better equipping you to access the necessary finance.

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If you're a business owner seeking much-needed funds or looking to understand your finance department better, here is a breakdown of some terminology we use when dealing with Invoice Finance:

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Invoice Finance: Allows businesses to access funds based on the value of unpaid invoices. It's a practical working capital solution, enabling businesses to receive funds immediately after raising an invoice, rather than waiting for customer payments. Businesses can access up to 90% of the outstanding invoice value.

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Factoring: A type of invoice finance where the provider manages the entire sales ledger and credit control. The provider collects invoice payments, which are then paid to the business on a pre-agreed basis.

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Invoice Discounting: Another type of invoice finance where the business retains control over sales ledger management, credit control, and invoice collection. Payments are deposited into a bank account owned by the finance provider but held confidentially in the business's name..

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Credit Control: The process businesses use to receive payments from customers. Timely collections ensure that the business has adequate cash flow to meet its operational needs.

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Service Fee: This fee covers the cost of managing the invoice finance facility, including credit control, collection of payments, and maintaining the service. It is usually a percentage of the total invoice value and is often charged on a regular basis (e.g., monthly).

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Discount Fee: Sometimes also known as the interest rate, this fee is similar to an interest charge on the funds advanced. It is calculated based on the amount of money advanced to the business and the period for which it is borrowed. The discount fee is typically expressed as a percentage per annum but charged on a daily basis for the duration that the funds are outstanding.

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Bad Debt Protection: In invoice finance, often referred to as "non-recourse factoring," is a service provided by the finance company where they assume the risk of non-payment if the customer (debtor) fails to pay the invoice due to insolvency, bankruptcy and sometimes late payment. This means that the business using the invoice finance service is protected from the financial impact of bad debts, as the finance company covers the loss.

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Today, we have covered the key terminology used in Invoice Finance but these continuously change.

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At TSF Finance, we are true experts in Invoice Finance, and we would love to discuss this with you further.

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Ready to take control and streamline your financial operations? Reach out to TSF Finance today and let our dedicated team assist you in achieving your business goals. Visit our website or contact us directly to learn more about our services and start your journey towards financial empowerment. https://www.tsffinance.co.uk/contact-us

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