Invoice Finance

Boost cash flow, grow faster. You can order, send your bills, and get paid in 48 hours with invoice finance. Keep your sales ledger private or let the lender collect outstanding payments. Unpaid bills or borrowed money can be used to buy order materials. Flexibility matters. Stop chasing money. Focus on business growth.

What is Invoice Finance?

Invoicing is ideal for small to medium-sized companies with B2B customers as it allows for faster payment, often within 24 hours, and allows for use of unpaid invoices as collateral for loans or advances.​
 

For businesses with a minimum annual turnover of £100,000 and invoice payment within 14 days, this funding option is available. Swoop's network of UK invoice finance lenders can provide up to 99% of invoice value, depending on a company's product or service and invoicing terms.

This type of borrowing is beneficial for businesses with limited assets as collateral for bank loans. Their unpaid bills are collateral. Additional security is rarely needed.

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How Invoice Financing Works

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Invoice finance allows you to manage your sales ledger and handle customer payment follow-ups yourself, which typically results in lower costs compared to invoice factoring.

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In the UK, invoice finance providers earn through two main channels: interest charges and credit management fees. Interest rates usually range from 1.5% to 3% above the Bank of England base rate and are calculated daily. Credit management fees typically range from 0.25% to 0.5% of your turnover. These costs are comparable to other traditional business funding options, like overdrafts and bank loans.

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For a detailed quote tailored to your business, Monetae partners with various invoice finance companies and can help you find the right fit.

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An Example of Invoice Finance

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Consider a wholesaler who issues a £10,000 invoice with a 60-day payment term. Without invoice finance, this invoice ties up cash flow for two months. With an invoice finance agreement, the lender provides 80% of the invoice value upfront. The wholesaler submits a copy of the invoice to the lender and receives £8,000 (80%) immediately.

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When the customer pays £10,000 after 60 days into a trust account managed by the lender, the lender recoups the £8,000 loan, deducts fees and interest, and transfers the remaining balance to the wholesaler.

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Here’s how this might look:

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• Invoice value: £10,000

• Loan amount: £8,000

• Balance outstanding: £2,000

• Customer payment: £10,000

• Loan recouped: £8,000

• Fees and interest: £300

• Balance to wholesaler: £1,700

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Can Small Businesses Use Invoice Finance?

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Yes, if your annual turnover is at least £100,000 and you have invoices with terms of 14 days or more, invoice finance might be suitable for you.

 

Key factors for approval include:

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• Minimum turnover

• Business-to-business (B2B) customers

• Invoice terms meeting the lender’s criteria

• A history of reliable customer payments

• Recent financial statements

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Advantages of Invoice Finance

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Invoice finance, whether through invoice discounting or factoring, offers several benefits over other forms of borrowing:

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• The invoices themselves serve as collateral, often eliminating the need for additional security

• It’s scalable, allowing access to more cash as your turnover grows

• It’s flexible, with many businesses qualifying if they meet basic criteria

• Factoring can streamline accounts receivable management

• It’s confidential, with customers unaware of the borrowing

• It provides fast access to funds compared to traditional bank loans

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Invoice Factoring vs. Invoice Financing

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While both options offer early invoice payment, they differ significantly:

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• Invoice Financing: Uses invoices as security for a loan. You retain control of your sales ledger and chase payments yourself. Costs include interest and credit management fees. It is confidential, and customers don’t know about the borrowing.

• Invoice Factoring: Involves selling invoices to a factor who then manages the sales ledger and chases payments. This method generally costs more due to higher administration costs and is not confidential. Customers will be aware of the factoring arrangement.

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Invoice Finance Fees in the UK in 2024

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Invoice finance costs include interest and credit management fees. Interest rates typically range from 1.5% to 3% above the Bank of England base rate, calculated daily. Credit management fees usually vary from 0.25% to 0.5% of turnover. Additional costs might include an origination fee.

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Invoice Factoring Fees in the UK in 2024

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Factoring costs, known as the factor rate, can range from 0.5% to 5% of invoice value. This rate is influenced by factors like invoice value, the industry, client reliability, and your business’s credit rating. Factoring generally includes a time-charge based on how long credit is extended.

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Invoice Finance Using Blockchain

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Blockchain technology offers a digital ledger that enhances transparency and reduces fraud in invoice finance. While still emerging, blockchain in invoice finance promises faster transactions and reduced costs by increasing efficiency and lowering risk.

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Invoice Finance Fraud

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Fraud in invoice finance includes ‘Fresh Air Invoicing’ (raising invoices for unfulfilled orders) and ‘Fake Invoicing’ (creating fictitious invoices). Both are criminal activities that can lead to prosecution.

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Accounts Payable Financing vs. Invoice Financing

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Accounts payable financing is a loan used to pay for materials or services, not to cover unpaid invoices. It helps with immediate costs and is repaid when the customer pays the invoice.

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Is Invoice Finance Right for Your Business?

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Invoice finance is ideal for businesses needing to improve cash flow, offering quick access to funds and requiring no hard assets. However, it’s designed to address cash flow issues rather than replace lost revenue. It’s not a cure-all for sales declines.

 

How to Apply

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Monetae simplifies the application process. Contact us or apply online to get quotes for invoice finance customised to your business needs and eliminate slow cash flow issues efficiently.