What is invoice finance

In laymans terms – Invoice finance is when a finance company advances a loan to you against sales invoices.

This form of finance, whilst expensive, is ideal for companies with a high cost of sales (such as a recruitment company with temporary staff and companies with long payment terms). There are two main types of invoice finance and both can be beneficial depending on your business model.

We can help you find the best invoice finance product for your business and check pitfalls such as: 

• Concentration levels,  
• Recourse or insured facilities and the effect they will have on your business  
• Concentration 
• Capacity  

If you already have an invoice finance facility but need help keeping your debtor days below your finance companies target or finding that their credit control process isn’t working as you had hoped and you have to get someone else to fulfil that role, we can help with our outsource collections facility click here for more details. 

See below for more details on how CMG UK can help with your invoice finance issues.

Below is a brief synopsis of different invoice finance facilities:  

Factoring

This is where you agree terms in order to get payment before the invoice is due:

• Step one – you raise the invoice to send to your customer and submit it to the finance company
• Step two – within 24 hrs of submitting the invoices to the finance company, they make available funds of usually up to 90% of you total invoice value against that invoice 
• Step three – the invoice gets paid to the finance company by your customer
• Step four – you receive the balance of the invoice value. For example 10% if the advance was 90% from the finance company
• Step five – if the invoice is not paid within an agreed time frame (usually 90 days) the finance company will take the advance off you.

Pros of using Factoring:

• Instant finance in line with your sales 
• Factoring company carries out credit control activity for you  

Cons of using Factoring:

• This type of invoice finance is not confidential and your customers will know that you are using a factoring company
• If at any stage the invoice is disputed the finance company will take back the advance immediately with little or no notice to you
• The factoring company will chase the invoice for payment, often not very effectively and often focus on higher value invoices only 
• Factoring companies’ collection strategy is not always customer focused and can damage your relationship with your customer
• It is an expensive way of financing your business  
• Your customer will know they have 90 days instead of your agreed terms so may pay later increasing your finance costs 
• Factoring is often considered as an indication of your pending insolvency

CHOCS (Client handles own Collection service)

• A hybrid between factoring and invoice discounting
• It is a disclosed facility, so your customers are aware you factor your accounts to finance company
• Cost is usual less than that of full factoring  

CID (Confidential Invoice Discounting finance)

Confidential Invoice finance is a confidential agreement between an invoice finance provider and a company which remains undisclosed to customers of the business.

• You remain in control of collecting the invoice so you can maintain the business relationship you are building
• If an invoice is disputed you will not get the advance taken off you as long as the invoice is paid by your customer within 90 days
• Fees are more cost effective than factoring
• There is a minimum turnover before a company will be considered for a confidential facility
• You will need to demonstrate you have a robust “Order to Cash” process and procedures in place

How We can help at Credit Management Group UK?

At Credit Management Group UK our core business is outsourced collections where we can manage your whole credit management process for you.

Benefits:

• We work for you not the finance company
• Perceived risk from the finance company is greatly reduced when they know the credit management function has been outsourced to experts. This can assist to reduce the finance companies fees
• All our activities are carried out in your name so your customers are not aware you have outsourced this function

For full details of our service visit our outsourced collections page.

Or we can assist you to improve your current credit management function by our consultancy service.

We work with a number of companies on this basis and you can see how much this has helped:

Company: provider of downstream access mailing solutions  

£150m turnover  

CID facility as high cost of sales  

Issue 

Company growing exponentially resulting in an increase in disputed debt and  debtor days being over finance companies target 

Disapproved debt (over 90 days) in increasing and having a significant negative effect on available finance to support continued growth 

Solution 

Outsourced collections to CMG UK, within 3 months we could demonstrate a significant reduction in debtor days 

Further reductions in Debtor days were gained by:  

• Implementing a dispute resolution process to resolve disputes in less time 
• Creating a suspend account process ensuring all stake holders in the business were made aware of issues prior to any account being suspended 
• Coaching sales and account managers  to be more commercially aware and contract law basic principles 
• Produce a new customer onboarding process and roll out to all stakeholders  

Outcome  

• Improved cash flow  
• Greater customer satisfaction 
• A substantial reduction in agreed service fees with their financier  

Company: A provider of temporary staff to schools 

£600k turnover 

Factored facility 

Issue 

• Exponential growth during Covid 
• Considerable misallocations by factoring company as their AI statement ignored customer remittance advices when allocate payments to accounts and invoices 

• Substantial customer complaints due to the misallocation issues 
• Disapproved debt of £220k impacting cashflow 

Solution 

• Outsourced collections to CMG UK 
• We negotiated with factoring company on behalf of our client that they will no longer allocate payment with AI or to oldest invoice first and leave as a payment on account if they don’t have a remit 

• Agreed with Factors that we will take over all credit control duties and they won’t contact customers directly.  
• Worked with customers to reconcile accounts and obtain payment of outstanding invoices 

Outcome  

• Disproved debt reduced to £4,000 
• Improved relationship with customers  

We are happy to offer any level of service needed from process changes to outsourcing your credit management function.