Invoice Finance

What is invoice finance UK?

Invoice finance in the UK is where an invoice finance provider buys a business’s unpaid invoices for a fee. The provider will often provide a percentage value, usually up to 90%, of the invoice upfront in the form of a loan.

Once the client has paid the invoice, the lender will collect the balance in addition to a small fee. This means businesses can free up cash flow and don’t have to wait to receive payment for their goods or services. There are 2 main types of invoice finance: invoice factoring and invoice discounting.

Is invoice financing a good idea?

Invoice financing has become a popular solution for businesses due to its simplicity and providing funding to businesses quickly to improve their working capital. Waiting 30 - 90 days to receive payment of invoices or late invoice payments can put a financial strain on a business. To avoid running into cash flow problems, businesses can use an invoice financing provider to secure a percentage value of the unpaid invoice upfront. The lender will collect the money once the invoices have been settled along with a percentage fee.

Is invoice finance regulated in the UK?

Invoice finance services are not currently regulated by the FCA (Financial Conduct Authority). To ensure integrity and a fair service is provided, UK Finance have an industry-wide code of conduct. The regulation of the invoice finance industry would most likely lead to an increase in the costs associated with invoice financing. Not being regulated ensures the costs of invoice financing are kept down for the consumers seeking to utilise invoice finance for an instant cash injection for their business.

How does invoice financing work?

A business raises invoices as they normally would and the invoice details are passed on to the invoice finance provider, who will then release a percentage of the value of the unpaid invoice upfront. With Hitachi Capital Invoice Finance, our revolutionary digital onboarding process allows businesses to be set up from first appointment to release of funds within 24 hours for smaller SMEs and up to 7 days for larger corporate businesses.

Depending on the invoice finance agreement entered, the business or the invoice finance provider will chase payment for the unpaid invoices. Once the invoice has been paid, the invoice finance provider will release the remaining balance minus a small fee for the service.

What is the difference between invoice discounting and factoring?

The primary difference between invoice discounting and factoring lies with who is responsible for collecting the unpaid invoices. Invoice discounting ensures the business is in control of collecting the unpaid invoices as this is a confidential facility. With invoice factoring, the factoring company takes control of collecting the unpaid invoices. In either case, businesses can be advanced up to 90% of their unpaid invoices upfront, with the remaining value coming after the customer has paid the invoice.

What is an invoice finance agreement?

An invoice finance agreement is when a business will enter an agreement with an invoice finance provider to finance their unpaid invoices. By having an agreement in place, businesses can have instant access to cash rather than waiting a period of time for their invoices to be paid by their customers. It helps to resolve any cash flow issues arising with a lack of instant cash available to pay monthly expenses such as rent and payroll.

Is Invoice finance suitable for small businesses?

Invoice finance provides an alternative finance solution to traditional forms of finance such as loans, lines of credit and overdrafts which often come with a multitude of eligibility requirements. The mechanics of providing funding for unpaid invoices to improve the cash flow of a business works the same for any size of business.

In order to be eligible for Hitachi Capital invoice Finance:

• Your business has to be invoicing other businesses (not consumers)
• You can be starting up, growing or well established. We support many businesses at different stages with their growth ambitions
• If your business is a new start, we prefer homeowners, but if not please still get in touch as we will look at each business individually
• Your business needs to have a minimum turnover of £50,000 per year

What is an invoice finance facility?

An invoice finance facility is a finance facility provided by an invoice finance provider to help business owners leverage their unpaid invoices in order to provide an instant cash injection into the business.

The lender will release up to 90% of a business’s invoices straight away. On payment of the invoice from their customers, the lender will release the final amount minus any fees and charges.  There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.