Invoice Finance & Factoring - Our Top 5 Tips

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Confidential Invoice Finance and Factoring is a great facility for providing funding in a growing business but make sure you take advice before signing up or renewing your facility as there are many savings available. Here are our top 5 tips:

1. Save on Borrowing Costs: Only draw down funds from your Invoice Finance or Factoring provider when    required as you will be paying interest on your borrowings. Companies often draw down their maximum available balance and sit it in a bank account and do nothing with it. We have saved clients as much as £80 per day (£20,800 per year) in interest costs.

2. Confidential Invoice Finance or Full Factoring? Our recommendation would always be linked to the internal finance team that you have at your disposal. Where you have a bookkeeper who is processing your invoices, recording your customer remittances, reconciling your bank account and issuing customer statements then Confidential Invoice Finance is for you. This will result in a lower service charge as you will be responsible for chasing your debts thus reducing the Invoice Finance provider’s duties. Confidential Invoice Finance also prevents your customers from knowing that you have the facility as they pay their remittances into a trust account in your company’s name. Full Factoring is designed for smaller companies who have minimal or no finance team and therefore uses the full service of the Factoring provider. They will issue statements, chase payment by phone and if required issue legal letters. Typically your service charge will be higher but this may still be cheaper than employing a bookkeeper.

If you are unsure which to choose please take advice as we have moved a client from Full Factoring to Confidential Invoice Finance and saved them a minimum of £40,000 per year!

3. Notice Period & Renewal: Always ensure you receive a signed copy of your invoice finance or factoring contract and keep it in a safe place. We would also suggest that you make a note in your calendar or diary for the notice period for you agreement which will ensure you have time to look for a new invoice finance provider or re-negotiate a better contract in a year or 18 months. Don’t worry about moving from one invoice finance provider to another as ABFA are very strict on banks and lenders who do not play ball. Effectively your new provider buys your debtor book and repays the lending to your existing bank with all future collections going to your new lender.  Where monies continue to be paid by customers to your old invoice finance provider these will be notified to your new lender and paid across in a fair and reasonable timescale.

4. Bad Debt Insurance: Although often overlooked by clients when they sign up for invoice finance, in order to minimise their monthly costs, we would strongly recommend you review your industry and customer base before making a decision. In the current climate we are finding many companies going into liquidation which will likely result in a bad debt for your company. You MUST consider the impact of any of your customers going into liquidation as this could in turn have a serious impact on your cash flow and ability to trade going forward. If you have bad debt protection insurance make sure you review your limits for customers as businesses can grow quickly and we often forget that limits may have been set when we first up invoice finance and therefore can be much lower than current activity. Your invoice finance provider should also be able to do a credit search on a customer to establish if they are credit worthy or not. You may decide to take a risk any offer improved limits but at very least you have considered any adverse ratings.

5. Investigate Disapproved or Old Debts – Where you have old debts (typically greater than 60 days) make sure you are aware of the reasons for non-payment. Where clients are disputing rates, hours charged or pricing, make sure you resolve these issues as soon an as possible as you may be charged for re-assigning the debts back onto the ledger (a cost often never identified by clients). The collection of debts can often be overlooked by companies with more attention placed on raising sales invoices to increase available funds, however by collecting your debts quicker you will increase your available funds (all be it at a lower level) whilst also lowering your charges and interest. A good credit controller will ensure invoices are posted immediately, send statements to chase up the debt and then finally build a relationship with the customers to ensure payments are paid when promised.

Invoice Finance and Factoring facilities are a great way of funding your business and allowing it to grow but make sure you know what you exactly what the interest & charges are likely to be whilst also considering ways of minimising the costs. If you have an existing facility or are considering invoice finance or invoice factoring please give us a call on 01698 440330 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. for a free consultation and we will be happy to offer our advice.