Selective Invoice Finance: Could It Be A Solution For Your Business?
LendEdge was recently contacted by a Manchester based architects practice who needed to explore their finance options. We first of all spent some time with the directors discussing their plans, how they work, and who their typical clients are.
From here, we were able to discuss the various options available to them. A loan, a revolving credit facility, or selective invoice finance. Having discussed the practicalities of each type of funding, and how each one works, we settled on putting in place an invoice finance facility.
The type of invoice finance facility we decided on is selective invoice finance. The lender put in place an overall credit limit, and our client can draw cash against approved invoices raised, up to this limit. As the business grows, the funding limit will also be reviewed and increased as appropriate. As our client works with a mix of the general public, small businesses needing only minor work being carried out, and larger organisations with bigger projects, then a full book factoring facility was not appropriate.
Selective invoice finance allows users to fund individual invoices, as and when required. You carry out your work as normal, and raise your invoice as normal. You are then able to draw down up to 100% of the invoice value straight away, meaning that the cash is straight into your business, rather than you having to wait for 30 days or more. In this case, funds were with our client less than 10 minutes after they requested funding.
Once the invoice has been paid, and you have repaid the lender, any fees are taken and you facility essentially becomes dormant until you need to use it again. This could be straight away, weeks or even months later. It is entirely up to you.
Selective invoice finance can be used by almost any type of business that operates on a business to business basis, and that invoices once works have been carried out. Some lenders are also happy to fund the construction industry. Although all companies will operate in their own way, the fundamental principles are always the same:
- A funding limit is approved based on your current business and your aspirations
- Once you are set up, you carry out work as normal and when funds are required, your request an advance against a particular debtor
- The debtor may be approved during the set up process, or added to your facility ad hoc.
- Funds are advanced, and typically a daily rate is charged against the advanced amount
- Fees are charged from the date cash is advanced, to the date you repay the lender. So if you can repay early, then you can save on fees
- Once you have completed a transaction, you are free to use the facility against when you need. But whilst the facility is not in use, there are no fees charged.
Invoice finance is still very underutilised in the UK, but is a great way of businesses accelerating their cash flow and keeping on top of their finances. Maintaining healthy cash flow is key to any business. Invoice finance allows you to access up to 100% of the invoice value straight away. There are three main kinds of invoice finance. Invoice Factoring, Invoice Discounting and Selective Invoice Finance. Do you know which method will best suit your needs? You can find out more about our invoice finance services here.
Ready to secure invoice finance for your business? To find out more about how we can help the find funder for you, email sam@lendedgebf.co.uk or call 07837 812 145