What is Invoice Finance?
Invoice Finance is an umbrella term for services that allows businesses to use their sales invoices as security in return for ready cash. The business continues to provide goods and services to clients as normal, but receives up to 90% of the value of the sales invoices up front, with the remaining value paid back when the invoices have been collected, minus a small service charge (typically just 1-1.5% of sales turnover.
There are many benefits to adopting Invoice Finance services, including access to ready cash when you need it, flexible funding options that can be tailored to the evolution of your business, and outsourced credit control reducing your overhead costs.
Common Invoice Finance services include Invoice Factoring, Invoice Discounting and CHOCCS. The service you might choose depends on the size and nature of your business.
Invoice Factoring allows you to use your invoices as collateral in return for ready cash, with the factoring company collecting the payments from your clients. In addition to providing you with healthy cash flow when you need it, invoice factoring also means you no longer have to pay staff to manage your credit control in-house; allowing you to channel these resources into other areas of your business. Invoice factoring is generally a good choice for small to medium sized enterprises that are growing quickly and wish to expand and develop and need cashflow support.
Invoice Discounting (sometimes called Confidential Invoice Discounting) also allows you to use your accounts receivable as collateral, but unlike factoring Invoice Discounting allows you to handle your own credit control processes and keep the involvement of the finance company confidential from your clients. This option is popular with larger businesses that wish to maintain their relationship with their clients and have strong accountancy control.
CHOCCS stands for Customer Handles Own Credit Control. Like Invoice Discounting, this means that you maintain the relationship with your clients, but unlike discounting the client will be aware of the finance company involvement. It is a good choice for smaller companies who wish to maintain a relationship with their clients.