Receivables Finance provides a business with access to capital by using their outstanding sales invoices as collateral. Factoring and Invoice Discounting are the most commonly used products in this type of finance. They allow a business to unlock the money they are owed by debtors and improve their cash flow position by converting their accounts receivables into cash.
To do this, the company offering receivables finance, whether it be a Factoring or Invoice-Discounting firm, takes security over the outstanding debts, often by purchasing them outright, and makes an immediate cash advance to the client. This is typically 75% of the invoice value.
The balance of the invoice is then paid to the client, less the financing organisation’s fees, when final payment is received from the debtor. The process acts as a cashflow bridge between when the product or service is delivered and the payment is received.
Traditionally, receivables finance has encompassed the whole of a company’s sales ledger, where every invoice is part of the funding agreement and therefore charged for accordingly. This is whether or not this level of funding is required by the client.
Selective Invoice Finance is a new form of receivables finance that allows clients to choose which invoices they would like to fund, and when they would like to fund them. There is no ongoing contractual obligation to use the service. It can be used just once or on multiple occasions, it is entirely the choice of the client.