Invoice financing is a method of raising finance by selling your outstanding invoices to a specialist invoice discounter or factoring company.
There are 2 types of invoice financing in the UK.
The funder will advance a set percentage on the value of the invoice this can be as much as 90% of the value of the invoice. The initial payment rate will depend on a number of circumstances, which is often based on the nature of the business and the systems and operations of the sales ledger.
When the invoice is paid by the debtor the remaining value of the invoice will be available to be drawn upon, after the facility fees have been taken into consideration.
There are two main types of invoice discounting facilities, which are Confidential Invoice Discounting (“CID”) and Disclosed Invoice Discounting (“DID”). However, as invoice discounting facilities are often only available to companies, which have appropriate systems and operations and have proven track record.
The majority of the facilities are confidential. Therefore, the debtors are not aware of the funder involvement.
The main benefit of an invoice discounting facility is that the business retains control of the management of the sales ledger. The credit control of the sales ledger remains with the business, this ensures that debtor relationship are not interfered by the funder.
There is minimal administration in relation to the running of an invoice discounting facility. The majority of funders will expect that the business to complete a monthly reconciliation between their own sales ledger and the net assigned ledger with the debtor.