Factoring and Invoice Discounting: An Independent Insight from SME Invoice Finance

As the UK emerges from the downturn, cash hungry businesses need a new breed of financial partner, dedicated to meeting the needs of ‘owner-managers.’

John Wilde, Sales and Marketing Director of SME Invoice Finance answers some of the most Frequently Asked Questions from visitors to their web site.

What is the difference between Factoring and Invoice Discounting?

Both services, Factoring and Invoice Discounting, provide a high percentage of finance secured against your invoices. Typically, this is set at about 85% of invoice values. Factoring provides the additional advantage of a full sales ledger and collections service under which the Factor takes on the responsibility for your sales ledger. Under an Invoice Discounting service, you continue to administer the sales ledger and the funding relationship can be completely confidential, so that your customers are unaware of the facility.

How does invoice finance work?

Invoice finance is a highly effective way of increasing your working capital significantly by converting your trade debtors – sales invoices – into cash.  When a business enters into an invoice discounting arrangement, it assigns the sales invoices that it issues to its customers to a finance provider. Then, within a period of 24 hours of receiving the invoices, the finance provider pays the business typically 85% of the invoice value in cash. The remaining balance – less the finance provider’s charges – is then made available to the business once the debt has been collected.

Why is invoice finance preferable to a bank overdraft?

Compare the typical advance of 85% through invoice finance with a likely overdraft maximum advance of 40-50% and you can see why it is growing in popularity with ambitious owner managers. Instead of being a fixed ceiling facility, invoice finance has the flexibility to expand with your sales without the need for time-consuming renegotiation. Also, an invoice finance facility cannot be called in, unlike a bank overdraft!

SME Invoice Finance Limited

Chertsey House
56-58 Chertsey Street Guildford GU1 4HL
T: 01483 531100 F: 01483 300959 E: [email protected]
W: www.smeif.com