Invoice finance, debt factoring, invoice discounting or single invoice finance, are all variations of a theme: good cash management and not always a sign of desperation. Companies should choose to hold cash rather than illiquid invoices because cash can be reinvested in the business to generate high positive net present value, or can be used to pay off expensive debt. Both increase the company’s profit & loss. Invoices do not. Invoices are a drain on the business, generating no return yet costing money to fund outstanding debtors, either because of interest on debt or because of an opportunity cost, plus they represent a credit risk.
Factoring and invoice discounting have tarnished reputations because many of the firms that offer them take a multitude of fees off of the company selling its invoices and they often commit the company to selling more invoices than it would like to.
Single invoice finance is similar to conventional factoring but it can have several key advantages:
- No security (such as a debenture or guarantee) from the business.
- No commitment from you the business to sell any invoices, so there is no facility established
- Sell small value invoices (from £500) can be sold. Many factoring firms would baulk at buying such a small invoice as it would cost them more to process the purchase than the fee they would earn
- One fee only to pay, meaning the business saves on many fees that conventional firms charge such as: arrangement, servicing, renewal, and exit fees.
An illustrative quote: A single invoice finance company would buy a £100 30-day customer invoice off a company for up to £87.50 paid upfront less the buyer’s fee, and a retention of up to £10 when (if) the debtor pays the invoice, so £97.50 in total (less VAT on the fee). No further fees and no commitment to sell further invoices.
As an affiliate to the Insiders we are able to offer a discount to you, check out this page to learn more and if you would like advice on a particular area relating to cash flow, getting paid and invoicing please do not hesitate to get in touch and we will create content for The Insiders The Knowledge. Contact us here.