Welcome to Open InVoice Finance’s FAQ

Invoice finance is a flexible funding solution that allows businesses to borrow money against their unpaid customer invoices, giving them access to cash that would otherwise be tied up in accounts receivable.

When you raise an invoice, the finance provider can advance you a percentage (usually 80-90%) of the invoice value immediately. Once your customer pays the invoice, you receive the remaining balance minus the lender’s fees.

• Maximises cashflow
• Revolving credit line
• Grows with your sales
• Total confidentiality and keep complete control over your customer relationships
• Typically more cost-effective than traditional forms of finance for the value provided

With invoice finance:

• Funding grows with your sales
• No fixed limits or ceilings (if structured correctly)
• Often provides higher availability of funds
• No need for constant renegotiation
• It’s a revolving facility, unlike a loan which is repayable over an agreed period

• Establish if invoice finance is the right product for the business and its needs
• Understanding the costs versus benefits
• Understanding the funding structure mechanics to ensure you have predictable cashflow – consider export caps and debtor funding restrictions
• Understanding the security requirements
• Choosing the right invoice finance product for your needs
• Partnering with the right Invoice Finance provider that is a good match ideally for the short, medium and long-term
• Ensuring you understand the mechanics of running an Invoice Finance facility and put appropriate resource in place

Generally, businesses that sell to other businesses (B2B) with a minimum annual turnover (usually £100,000+) and have creditworthy customers can qualify.

• Aged Debtors Report
• Aged Creditors Report
• Management Accounts
• Annual accounts
• Financial projections (if available)
• Sample invoicing paperwork

• People – do the owners of the business have suitable track records.
• Debtors
  • Who are the customers?
  • Are they suitably credit worthy?
  • How and when do you invoice? What are the payment terms? Is the service or product contractually complete when you invoice?
  • Is there a customer sign off to evidence the invoice?
  • What discounts, rebates etc could dilute the value of an invoice being paid in full
  • Do you have high debtor concentrations?
  • Do you have high levels of export?
• Financials – overview of historic, current and forecast trading performance
• Funding Requirement – What is a suitable advance rate against the debtor book and does this deliver the working capital that the business needs?

Invoice Discounting: You maintain control of your sales ledger and collect payments yourself, making it confidential from your customers

Factoring: Aswell as providing funding, the finance provider manages your sales ledger and collects payment from your customers.

With factoring, yes, as the finance provider collects payment as part of the service. With invoice discounting, no – it’s confidential and you maintain customer relationships.

• Generally, facilities are whole turnover meaning that you assign all of your invoices for all customers and the Invoice Finance company mirrors your sales ledger
• This makes it easier to administer and gives you a basket of invoices that creates available funds that you can draw on if you wish
• It might be agreed that some customers are non-notified as part of the facility. This might be for customers on short or pro-forma payment terms, where there is limited cashflow benefit, or if there is a reciprocal trading relationship and there is a risk of offset, or they are an associated company and not suitable

• This type of Invoice Finance is provided by specialist providers.
• You choose which customers and/or which invoices you want funded
• Typically, this is a pay as you go model
• It provides flexibility for you to dip in and out of if you only have occasional additional cashflow requirements
• If you have an ongoing funding requirements, then a whole turnover facility is likely to be a more economical way of obtaining funding.

Invoice Finance tends to be most effective in business scenarios with these characteristics:

• Growing companies – When rapid growth means you need more working capital than your current cashflow allows. The financing helps bridge the gap between delivery and payment.
• Seasonal or cyclical businesses – When you have predictable busy periods that require extra working capital to smooth the peaks and troughs of your trading patterns.
• Long payment terms – When your customers typically pay in 30-90 days but you need cashflow sooner to operate. This is common in industries where extended payment terms are standard.
• High-value B2B transactions – When you’re dealing with large invoices to other businesses.
• Strong customer base – When your customers are established businesses with good credit, as this reduces the risk for finance providers and typically leads to better rates.

Typically, but not exclusively, the sectors suited to invoice finance include:

• Manufacturing
• Distribution
• Wholesale
• Haulage
• Recruitment
• Business services
• Construction, including funding applications for payment

Invoice Finance can strengthen supplier relationships by:

• Enabling consistent, timely payment to suppliers
• Providing more predictable cashflow for regular orders
• Giving confidence to commit to larger supply contracts
• Supporting seasonal buying requirements
• Building credibility as a reliable trading partner
• Maintaining stable ordering patterns even during growth

Costs depend on the product, size and risk.

Most invoice finance providers charges have three main components:

• Service Fee
  • Either a fixed monthly fee or % of turnover in the range 0.1-3% of turnover.
  • This is the fixed cost of having access to the cashflow facility.
• Discount Charge
  • Similar to interest rate, typically 2-3.5% over base
  • This is charged against the drawn funds
  • You do not have to draw funds if you don’t need to, thereby controlling this cost.
• Additional Fees
  • Setup fees
  • Audit fees
  • CHAPS/same-day transfer fees
  • Bad debt protection (if chosen)
  • Renewal Fee

Contract lengths vary by provider – some offer rolling monthly contracts, others require minimum terms of 12-24 months.

The typical process takes 3-6 weeks and includes several stages:

Initial fact find & Funders Report (1-2 weeks)

• Teams call or meeting with broker to understand the business, discuss the requirement and assess the suitability of Invoice Finance
• Obtain the relevant paperwork to complete a Funders Report, pitching the opportunity to target lenders
• Obtain outline terms from target lenders and run through these in detail to ensure an informed decision is made
• Introduce the preferred partner who will then complete their credit process

Due Diligence (1-2 weeks):

• Review of your accounts
• Analysis of your invoicing processes and customers
• Complete credit application
• Issue offer and legal documentation

Setup Phase (1-2 weeks):

• Debtor verification
• Deal with any pre-commencement conditions
• Staff training on processes
• Bank account setup
• Final documentation signing
• Funds drawn

Factors that can speed up the process:

• Invoice Finance Broker involvement at an early stage
• Having all documentation ready
• Quick response to information requests
• Clean credit history
• Straightforward customer base

• Invoice Finance companies have a portal where you upload your invoices either as a batch total (invoice discounting) or individual invoices (typically via csv file)
• Some providers have data extraction software that reads information straight from your accounting software
• Customers will need to be notified of the invoice finance trust bank account details
• You can request funds via the portal and check availability
• Once a month you will be asked to complete a reconciliation to ensure your sales ledger and the Invoice Finance companies ledgers align
• You will likely be asked to send in management accounts and bank statements on a monthly basis

• Common security requirements include:
  • Charge over book debts
  • Credit insurance on your sales ledger (if required)
  • Personal guarantee or Fraud Warranty from directors may be required
• If there is an existing debenture in place, for example for a loan or overdraft, then the invoice finance company will wish to enter into a priority agreement whereby they rank first on the debtor book. This is a well-trodden path, but it does need planning in the process and early engagement with the existing charge holder that they will, in principle, accommodate this.

Once set up, funds are typically available same day or within 24 hours of submitting an invoice.

• Protects against customer insolvency or protracted default
• Covers an agreed percentage (typically 80-100%) of the protected invoice value
• Often integrated into invoice finance facilities or can be a separate policy alongside the invoice finance facility
• Can be applied to whole ledger or specific customers

Costs

• Primary charge: 0.2-0.5% of protected turnover
• Higher rates for higher-risk sectors or customers
• May include additional fees for credit limit reviews
• Sometimes bundled into overall service charge

Consider these factors:

• Peace of mind against customer insolvency
• Helps secure better overall funding rates
• Can replace separate credit insurance
• Supports business planning with more certainty

Particularly valuable if you:

• Have high-value individual invoices
• Work with a concentrated customer base
• Operate in sectors with higher insolvency risks
• Deal with longer payment terms
• Have limited financial reserves

Yes, you can switch providers quickly and easily, particularly if they are members of the trade body, UK Finance.

Clients move between Invoice Finance providers for a multitude of reasons. It could be cost, service, funding levels or security requirements. It’s key that you understand the benefits of moving and timings of the transfer. A specialist Invoice Finance broker can help you navigate these steps as follows:

• Seek a better alternative Invoice Facility through a well conducted and targeted tender process
• Undertake Due Diligence with the preferred partner
• Obtain credit backed offer and legal documentation
• Once happy, provide notice to your existing provider
• Agree a transfer date between the incoming and outgoing provider
• On the day of transfer, the incoming provider will settle the balance outstanding with the outgoing provider
• You then start working with the new provider
• Customers will need to be notified of new trust bank account details
• The outgoing provider will forward customer received funds to the new provider for an agreed period of time (typically 3-6 months)