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Frequently Asked Questions – And Answers

Why do businesses use a broker – and why Invoice Finance Scotland?

Invoice finance has evolved dramatically over the past 10-15 years due the plain fact that it works when done well. At Invoice Finance Scotland, our key strengths are our independence; our time served and honoured experience and expertise – and our flexibility. We deal equally as proficiently with new start-up businesses, restructuring businesses, and businesses that are dissatisfied with their existing brokers. Unlike many, we fully acknowledge that the needs of each and every business are different. Befittingly, we have superior market access direct to key decision makers that enables us to quickly and efficiently match specific business finance needs with the most appropriate funders.

Circumstances fluctuate in business, for better and for worse, yet it is our philosophy to remain committed throughout the good times and the bad, providing on-going advice and solutions.

What gives Invoice Finance Scotland its competitive edge?

The dealings of some invoice finance companies are confined to existing portfolios of funders. This lack of flexibility results in them only being able to work with what they have, which does not necessarily equate to end financial solutions that best befit specific needs. As we are independent, we have the luxury of working in partnership with a broader spectrum of funders, thus securing the best deals on the market for businesses.

How much does it cost?

It does not cost businesses a single penny to enlist our services. Our money is made from funder introduction commission payments.

What does invoice finance mean?

Invoice finance means the generation of commercial finance against outstanding customer invoices. It is an umbrella term that encompasses invoice discounting and invoice factoring.

Why do businesses choose the invoice finance route?

An enormous number of businesses have plenty of money on paper – namely on their debtors’ lists. Yet outstanding invoice amounts, however impressive they might be, can create worrying financial holes before payments are actually received. Businesses opt for invoice finance so they can access cash as soon as customer invoices are raised, without having to wait for their customers to pay up. This provides ready working capital that is not reliant on timely customer payments.

Is invoice finance not a desperate measure?

There is nothing desperate about invoice finance. On the contrary, many ailing businesses making last ditch attempts to stay afloat are often refused invoice finance. It is simply a means of businesses putting their assets to work to keep their cash flow buoyant.

Do all invoice finance companies essentially do the same thing?

Of the hundreds of invoice finance companies around, their marketing material might seem pretty similar, yet they have drastically differing levels of expertise, pricing, products and specialist areas. At Invoice Finance Scotland, we offered rounded services based on deep understanding of businesses, close relationships with funders, and keen eyes for putting both sides together in synergistic partnerships.

What is invoice factoring?

Invoice factoring offsets shortages of working capital caused by untimely customer invoice payments. It can also incorporate bad debt protection. When customer invoices are raised, businesses can generally expect to receive 80-85% of invoice values from their factoring partners. When customers settle their invoices, businesses are paid the differentials, minus applicable service charges.

Credit control and collection services are included with invoice factoring, which adhere to pre-agreed credit terms, thus encouraging faster customer settlement without sacrificing goodwill. Besides bolstering cash flow, businesses also experience substantial administration savings, as speedier customer settlement reduces the interest charges based on the borrowing period.

What does the process for invoice factoring involve?

In essence, once businesses have fulfilled their customer requirements and raised invoices, they then sell their customer debts to their factoring partner in exchange for an advance payment of anything between 75-90% of invoice totals. At the point of customer settlement, factoring companies then release finals balance payments to businesses, with service and interest charges automatically deducted.

Does invoice factoring have adverse effects on customer relationships?

Opting for invoice factoring should not cause any undue disgruntlement to customers. It is simply an outsourced function, although businesses going down the invoice factoring route should choose their factoring partners carefully. Whilst the relinquishing of their credit control comes as a blessing to many businesses, the heavy handed tactics used by some factoring companies can naturally have a disastrous knock on effect on relationships between businesses and their customers.

What is invoice discounting?

Invoice discounting is almost identical to invoice factoring, but without the credit control aspect of invoice factoring. It often provides a more sound option for businesses who successfully manage their own credit control. However, they share identical needs to generate working capital from their debtors’ lists.

Cash payments of up to 85% of customer invoice values are made by return, yet processes and procedures remain unchanged as far as both businesses and their customers are concerned. The main difference is that customer payments are deposited in to an Invoice Discounter’s account before being passed on to businesses with service and interest charges already deducted.

What does asset based lending mean?

Whereas invoice factoring and invoice discounting generates fast cash based on outstanding customer invoices, asset based lending does the same job against machinery, plant, property and stock. It is an increasingly popular method of cash generation in the UK and is regularly utilised to fund business acquisitions, refinancing, growth and turnarounds.

What does invoice finance cost?

Service charges are calculated in more than one way, dependent upon the very specific natures of businesses and their financial needs. Some cases involve flat monthly fees, others % of turnover. For invoice discounting, service charges generally equate to less than 1% of the turnover of businesses, whilst invoice factoring typically costs between 0.75-2.5%.

As with regular secured bank overdrafts, the upfront payments made to businesses upon customer invoices being raised are subject to discount charges based on daily fund usage before customer settlement.

What makes invoice factoring the pricier option?

Invoice factoring carries a higher price tag than invoice discounting as businesses benefit from the professional credit control and sales ledger management services included in their packages.

IFS Guide
IFS Presentation
NACFB - Helping Fund UK Businesses  Federation of Small Business