All types of business share the same need for working capital in order to operate and pay suppliers, staff, rent and overheads. Even profitable businesses may have insufficient cash to meet these payments. In the long term, a business will need both positive cashflow and profitability to survive, but of these, cash is the most important.
Cashflow problems can occur when a business has to spend money to provide goods and services before it receives payment from its customers. The business may need to look for external funding to help finance its operations.
And at a time when traditional sources of external funding are getting harder to access for many owner-managed businesses, invoice finance is proving a popular alternative. If your business has its daily running costs covered, external funding may be the solution you need to grow.
Invoice finance is a way of borrowing money based on what your customers owe to your business. It works by using unpaid invoices to represent money that will be paid to you, avoiding the usual wait for the payment terms. These can be anything from 14 days to 90 days or even more. Put simply, Invoice Finance is the sale of a business’s unpaid invoices to an Invoice Financier (such as Skipton Business Finance) for a payment equivalent of up to 100% of the value of invoices.
The concept for invoice finance is simple; rather than waiting days or weeks for your invoices to be paid by customers, lenders advance you most of the value immediately. That means you get paid faster for completed work, so you can focus on running your business. If your business regularly invoices for work, you could be eligible for invoice finance.
This enables the business to get instant access to the cash they’ve earned, when normally they have to wait 30, 60 or even 90 days for debtors to settle invoices and so for the money to appear in their bank account.
Invoice finance is a finance facility provided by a lender to help business owners leverage their unpaid invoices and give them an instant cash injection into the business. On payment of the invoice from the customer, the lender will release the final amount minus any fees and charges for the service.
Invoice Finance can give you fast access to business cash based on your Accounts Receivable invoices. Many businesses will be suitable for this facility however businesses ideally suited to Invoice Finance will:
- Have owners who manage their operations (e.g. sole traders, partnerships, limited companies)
- Provide either a service or a product
- Raise invoices to other UK companies
- Have the ability to provide evidence that the goods and/or service have been delivered in full
Businesses are less suited to invoice finance if:
- Invoices are settled using stage payments either monthly or at certain intervals during the contract
- Sale or return contracts are issued as standard
- Extended warranties are granted
- Invoices are issued in advance
If your business fulfills the above criteria, then it is very likely to be suitable to invoice finance!
Here’s the really good thing: an extensive credit history is not required to be eligible for Invoice Finance! This is unlike the common requirements of many other forms of external funding, such as bank loans and business overdrafts, which tend to focus on perceived worth in the Balance Sheet or insist on taking charges over the marital home in order to provide a facility.
It’s the sales ledger of the business that Skipton Business Finance is interested in and will use to determine whether you can access invoice finance.
This means those businesses which may have been turned down for bank funding due to a lack of credit history are often able to get funding through invoice finance.
We are able to fund businesses ranging from complete new-starts to established businesses with sales of up to £30 million per annum.
This all depends on how much cash you have tied up in unpaid invoices.
But to give you a guide as to the amounts of money we’ve funded businesses with in the past, it can be as little as £25,000 or as much as £5 million!
There are three types of invoice financing available to businesses; invoice factoring, CHOCS and invoice discounting. Each finance product gives businesses the freedom to choose how much control they have over their finances. Skipton Business Finance is able to provide all three forms of invoice finance: Invoice Factoring, CHOCS and Invoice Discounting, which all fund your business by providing cash upfront in exchange for invoices. Whatever facility you choose, invoice finance can be a great way to improve your cash flow situation.
The Enterprise Finance Guarantee (EFG) is a loan guarantee scheme to encourage additional lending to viable small and medium-sized enterprises.
Skipton Business Finance is on the exclusive list of approved lenders able to allocate funds through the government’s Enterprise Finance Guarantee scheme.
The EFG scheme is a facility for small businesses intended primarily to improve the availability of working capital through term loans and the consolidation of overdrafts. It also supports lending for business growth and development in cases where a sound proposition may otherwise be declined due to a lack of security.
It is used at Skipton Business Finance to essentially ‘top up’ our invoice finance facilities with a bit of extra cash, which can be used to fund business transactions such as overdraft consolidations, acquisitions and mergers and management buy-outs/buy-ins (MBO/MBI).
There are many differences between discounting and factoring, but the main difference is credit control. You get credit control services included as part of invoice factoring, but it's not included with discounting.
Invoice Factoring, as well as providing cash in exchange for invoices, also provides your business with a credit control function; in essence we load your sales ledger and customers onto our system in order to ‘mirror’ your own records. Our experienced and professional team consequently take the responsibility for securing the payments from your valuable customers, giving you the peace of mind that your customers are being dealt with by an industry-leading credit control team. We send statements and Remittance Advices each month and can tailor a chasing letter cycle to your requirements – in the age of ever-increasing costs of postage, this can be a valuable cost saving to your business.
CHOCS is similar to invoice factoring as we again send letters and statements; however the primary telephone communication with your customers continues to lie with yourself. The acronym stands for Client Handles Own Collections – unfortunately free chocolate is not part of this facility!
With Invoice Discounting, we simply fund the total outstanding value of the sales ledger. We don’t include a specialist credit control function or send letters and statements, which means your own credit control team act as normal and continue chasing payments.
We ask for various standard reports at the end of each month and you are required to undertake a simple reconciliation exercise to ensure that our sales ledgers match.
There are also variants, click on the links below for more information on how they work:
- Confidential Invoice Factoring
- Disclosed Invoice Factoring
- Recourse Invoice Factoring
- CHOCS Invoice Factoring
No, absolutely not!
Skipton Business Finance provide a dedicated credit controller who, in effect, becomes an extension of your own team; chasing and collecting payment using the methods you already use and ensuring your valuable customer relationships are maintained.
Invoice Finance solutions provide a much safer and more flexible funding solution for many SMEs than bank funding lines.
Since you’re only leveraging the collection of future invoices (resulting in an increased cash balance and a reduced accounts receivable balance), you won’t have the burden of needing to repay loans. By far one of the best reasons invoice factoring is a better funding option than bank loans is that it doesn’t create debt.
Simply providing certainty of contract (i.e. not repayable on demand) and increased funding linked to sales, not the historic financial performance, will be a big plus to many businesses.
Skipton Business Finance prides itself on its ability to provide flexible funding solutions. Our facility offers are always bespoke to your business and, more importantly, customised to how your business then grows.
We have an experienced team who adopt a commercial approach to underwriting, putting your people and business at the forefront of our decision-making process. We never use a system-style scorecard and make each decision based on the individual merits of each and every business.
Our specialised Relationship Managers can offer you the time and focus you need to help ensure you get the most out of your factoring facility.
We also boast one of the lowest client-to-staff ratios in the industry meaning that you always get direct access to the decision makers.
We really do take pride in the fact that our business and the processes behind it put the client at the centre of everything we do.
And as we promise to provide each and every client of ours their own Relationship Manager to help manage the facility, we feel this ensures every client gets a top-class service regardless of geographical location.
Skipton Business Finance uses a system called iFactor, the world's number one asset based lending and invoice finance software, to manage our clients’ invoice finance facilities.
It has been developed in partnership with HPD Software, who have been providing management solutions to the Invoice Factoring industry since 1972.
We fully appreciate how important it is for your company to maintain good relationships with clients and debtors, so there are never any restrictions imposed on contact, regardless of whether your facility involves the provision of a credit control team or not.
Yes there are!
We offer a referral scheme which rewards clients with high-value gifts for every referral they submit resulting in a new client. What’s more, there’s no limit to the amount of rewards our clients can claim.
Just some of the gifts we’ve given away in the last few months include iPads, 3D-TVs and Ping Golf Sets.
Find out more about our new referral scheme here.
The process normally goes as follows:
1. Once an enquiry has been logged either online or directly with a member of our team, the prospect will get a phone call within 24 hours to discuss their funding requirements and see whether our facilities would be able to help the prospect’s company.
2. A member of our new business team will then look to arrange a meeting in person to have an in-depth chat and really find out what it is that makes the business in question tick. They’ll find out about the people behind the company, the product/service on offer and match what they think is the best product (e.g. Confidential Invoice Discounting) to the company.
3. We’ll carry out a survey at the company premises of the prospect. Here, our auditing team will look at the sales ledger, the nature and credit worthiness of the customer base, the supporting documents behind the creation of the invoice, the cashflow of your company and, to a lesser extent, its financial performance.
4. If the prospect is deemed suitable for invoice finance, an offer will be drawn up with details of the type and size of the facility offered, plus charges and terms.
5. If you’re happy with the offer, we’ll put the facility in place as soon as all documents are signed and returned!
As we’re an independent this allows us to act promptly on all enquiries, so you can expect a call by the next working day after first contacting us.
Once we’ve initially spoken with you about your funding requirements, our new business team are happy to move the process on as quickly as you like and take into account how soon you need a solution to be put in place.
Assuming everything went smoothly, you could have a facility in place with us inside 10 working days!