Invoice finance is a type of finance provided by banks and independent financiers to both companies and individuals. Invoice finance is primarily used by companies to facilitate their cashflow and enable smooth trading.
Invoice finance is also referred in other ways, including
- factoring;
- invoice discounting;
- confidential factoring;
- undisclosed factoring;
- maturity factoring; and
- recourse factoring.
How it works – in a nutshell
Effectively, invoice finance involves the assignment or “selling” of invoices by a business to financiers (such as a bank) in exchange for an initial pre-payment of say 80% or 90% against that invoice – such payment being made immediately to the company.
These pre-payments are made upon notification of the invoice to the bank or financier and dramatically helps in terms of a company’s cashflow. Otherwise, the company would need to wait for a considerable period based on average payment terms of invoices (in excess of 70 days) for the invoice in question to be paid. Using invoice finance allows a significant percentage of the invoice usually 80% or 90% to be paid immediately.
When the customer pays the financier (who now owns the invoice debt) the full amount, the balance of the invoice (less a small percentage for the finance company giving the facility and/or providing credit control functions) is paid back to the company. Invoice finance is therefore a very successful product and one which is increasingly used by businesses.
Francis Wilks & Jones is the leading legal expert in the world of invoice finance. Our team has combined experience of decades acting in invoice financing related matters. Whatever your invoice finance related question please contact us now and we can help you.
