With a growing number of invoice finance clients becoming less interested in full ledger facilities, what other funding options are there for those wanting to be more selective in their approach?
If you are familiar with this area of business funding, you will know that invoice finance providers have traditionally sought to provide funding across the whole of a client’s sales ledger. This is beneficial to them in two ways: not only does it provide additional security, with a ‘spread’ of debtors minimising the risk of non-payment by an individual debtor, but also, it gives them additional income with charges levied across the whole of the sales ledger.
Of course, these ‘whole ledger’ facilities work well for many clients seeking the maximum finance possible from their invoice finance facility.
However, as suggested above, there are a large number of both existing and potential users of invoice finance that don’t want, or need, this type of all-encompassing facility and would prefer to pick and choose what they finance, and when they do it.
In response to these market needs, I am very pleased to say, there are a growing number of providers that are bucking historic trends and providing both selective facilities, where not all of the ledger is covered, and indeed, single invoice products, where the client can fund one invoice at a time.
Let’s look in more detail at the types of product available.
Single invoice finance
With single invoice facilities there are two main types of provider:
1. This is a ‘traditional’ type of facility, where the provider will provide funding of up to 90% against an individual invoice. They will look closely at the debtor whose invoice is to be financed and of course the company looking to raise the funding.
- The advantage is that this will be a one off charge with no on-going commitment to fund further invoices.
- Certainty of finance availability once the contract is signed.
- Cost – the funding will be expensive when compared to whole ledger invoice finance rates. The charges will either be a daily or monthly rate. This is typically 5% per month.
- They will seek to take security over more of the ledger than just this single debt to provide the spread of cover as described above.
2. The second type of providers of these facilities are what has become to be known as Invoice Traders.
These are online platforms that will offer the funding of your single invoice to a group of approved ‘buyers’ – these buyers are a mix of High Net Worth individuals, family offices, Private Equity houses, Banks and even traditional invoice finance providers.
The seller will need to go through an approval process; once this is completed they will be able to upload individual invoices onto the platform, highlighting the maximum amount of interest they are prepared to pay, the amount of the invoice they are seeking funding for, i.e. 80%, and the amount of time they are seeking funding for. The buyers will then bid against each other to fund the invoice over, say, a 2-3 day period, with the lowest offer winning the right to finance the deal.
- Cost – These facilities can be very cost effective with some trading taking place for fees of 0.75% per month. There is an administration fee to be paid to the platform provider of circa 0.5%.
- Flexibility – You are not committed to any form of contract that says you have to fund more invoices through the platform and there are no other fees or charges.
- Certainty of finance – There is no absolute guarantee that the invoice will be funded as it may not receive any bids. However, our research has shown that this is very unlikely and we are told by one of the providers of these services, that they have never had an auction not be fully funded.
Selective invoice finance
One of the benefits of the advent of single invoice finance providers is that it has forced the traditional invoice finance companies to review their offering. As a result, a number of providers will offer a selective product that excludes certain parts of a client’s sales ledger. These products are not widely advertised, so it would be sensible to approach someone with a good understanding of the current market, to learn about what options might be available to you.
In addition, of course, it’s entirely feasible to use the single invoice finance providers – as described above – to fund multiple debtors. Our advice here would be to use an invoice trading platform to keep costs down.
If you would like to discuss potential providers of these products or to review single invoice finance and whether it is right for your business please contact me at email@example.com or on 0845 689 8750.
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