What is invoice finance
In laymans terms – Invoice finance is when a finance company advances a loan to you against sales invoices.
This form of finance, whilst expensive, is ideal for companies with a high cost of sales (such as a recruitment company with temporary staff and companies with long payment terms). There are two main types of invoice finance and both can be beneficial depending on your business model.
This is where you agree terms in order to get payment before the invoice is due:
- Step one – you raise the invoice to send to your customer and submit it to the finance company
- Step two – within 24 hrs of submitting the invoices to the finance company, they loan you typically 80% of the invoice value
- Step three – the invoice gets paid to the finance company by your customer
- Step four – you receive the balance of the invoice value. 20% if the advance was 80% from the finance company
- Step five – if the invoice is not paid within an agreed time frame (usually 90 days) the finance company will take the advance off you.
NB if at any stage the invoice is disputed the finance company will take back the advance immediately.
This type of factoring is not confidential and you customers will know that you are using a factoring company:
- The factoring company will chase the invoice for payment, often not very effectively
- The customer will know they have 90 days instead of your agreed terms so may pay later
- Factoring is often considered as an indication of pending insolvency by customers
CID (Confidential Invoice finance)
Confidential Invoice finance is a confidential agreement between an invoice finance provider and a company which remains undisclosed to customers of the business.
- You remain in control of collecting the invoice so you can maintain the business relationship you are building
- If an invoice is disputed you will not get the advance taken off you as long as the invoice is paid by your customer within 90 days
- Fees are more cost effective than factoring
- There is a minimum turnover before a company will be considered for a confidential facility
- You will need to demonstrate you have a robust “Order to Cash” process and procedures in place
How We can help at Credit Management Group UK?
At Credit Management Group UK our core business is outsourced collections where we can manage your whole credit management process for you.
- We work for you not the finance company
- Perceived risk from the finance company is greatly reduced when they know the credit management function has been outsourced to experts. This can assist to reduce the finance companies fees
- All our activities are carried out in your name so your customers are not aware you have outsourced this function
For full details of our service visit our outsourced collections page.
Or we can assist you to improve your current credit management function by our consultancy service.
We work with a number of companies on this basis and you can see how much this has helped:
We have been working with a company with long payment terms for approx. 9 months, along with carrying out the credit control function more efficiently that has led to an increase in receivables. We have helped them to develop their internal process such as improved onboarding of new client’s process and rolling out new terms and conditions along with training all staff on being more commercially aware to ensure less disputes as well as shorter payment terms.
This has helped them instantly with cash flow but also in a recent meeting with their bank they were able to agree a reduction in their service charge of 75%.
We are happy to offer any level of service needed from process changes to outsourcing your credit management function.
For more details, contact us on
03332 413 203