Case Studies & Articles
Location: London, UK
Invoice-based financing is a specialist type of lending available to businesses who are providing credit terms to their clients. Enness can support your business in obtaining a facility that provides ongoing access to finance in line with your fluctuating debtor book position and is secured against unpaid invoices owed to you by your clients.
Invoice-based financing provides short-term flexibility to generate working capital for your firm. Companies often use an invoice financing facility to:
Finance-based invoicing works when a lender gives you a portion of your invoices in cash immediately – usually within just a couple of working days. As a result, working capital is available to your business instantaneously, rather than waiting for the usual invoice payment terms. Invoicing finance is usually used by companies with payable terms of 30 days net (or more) to pay an invoice.
Depending on your lender, invoice financing facilities can work in one of two ways:
As your business issues new invoices to customers or clients for goods or services provided, you utilise a slick online platform to inform your lender of the invoices raised. Lenders will then issue a portion of the invoice to you direct to your bank account. The amount you are paid varies but is usually around 85% of the total invoice amount. When your client or customer has paid the outstanding invoice, you keep the difference less interest and fees owed to the lender.
The advantage of this system is that you keep lending "in-house" and your clients will be unaware of a lender’s role or that you have borrowed money against invoices. Lenders will work to support you by providing a dedicated team and online access to slick platforms that link to your bank account and accountancy package; the latter of which also provides the lender with ongoing information as to your trading activity and financial performance.
This mechanism for financing outstanding invoices is slightly different and known as “Invoice Factoring”. In this case, your lender will essentially buy your open invoices from you. How much the lender will buy them for will depend on your circumstances and the services or products you offer, but similar to discounting, will provide you with a percentage against the outstanding invoice. The remaining amount due to you is repaid when your client or customer pays their invoice, minus any fees or interest due to the lender.
While this can be advantageous in the sense that you receive a fixed sum and you don’t have to make any repayments to your lender, you need to be aware of some nuances. In this case, because your lender becomes the creditor, your clients will pay your lender directly and your clients will be aware you are financing your debtor book position. Your lender will also be able to contact clients directly to follow up on late payments per their own policies and credit control processes.
For significant finance invoicing deals equalling several hundred thousand pounds or more, lenders present offers on a case-by-case basis only. Every lender will have its own lending criteria and risk appetite, which will affect what you pay. Overall, costs will depend on your business, how much you want to borrow, what you are borrowing for, and the lender's risks.
The stronger your business’ financial position and the less risk there is that invoices won’t be paid, the less the facility is likely to cost. For more complex transactions, or if you perform very niche services or produce very specialist products, you are likely to pay more.
Invoice-based lending needs to be carefully considered. Enness will talk you through all the elements you will need to think about and understand to get the most out of this type of borrowing.
Invoice financing is not a way to circumvent issues that have arisen from clients that consistently pay late. Likewise, invoice-based lending doesn’t provide a mechanism to cover bad debt by shifting it around your P&L. Although this type of lending unlocks working capital, your business will need to be on solid footing from a financial perspective for it to be an option. Lenders will work with you through your working capital cycle to ensure they support your financing requirements relative to your debtor book position
Your lender will want to see solid proof that you are borrowing against invoices that you reasonably expect to be paid within your usual payment terms. You will need to:
If you have a book of bad debts or clients who regularly default on their payment terms, these are typically excluded from your facility.
When it comes to invoice-based financing, the devil is in the detail. When it comes to invoice-based financing, companies with solid finances, industry track record and good debtor book management are naturally more attractive to lenders. Usually, this is because they haven’t presented lenders with a compelling or completely watertight case for borrowing.
How a finance request is presented is key to obtaining this type of facility and Enness have many years experience of successfully presenting detailed analysis and compelling evidence to obtain the most competitive terms for our clients.
Most businesses can benefit from invoice financing, regardless of whether you supply goods or services. There are several excellent lenders in the market, although many of these primarily service small and medium-sized businesses. These lenders often offer relatively small loans, presented as package deals with set rates and terms and no room for negotiation.
If you need a high-value loan against your invoices, you will most likely need access to niche lenders. In this part of the market, mainstream lenders may not have a desire to provide significant loans: they are limited by how much they can lend and may not offer you as much as you need. Mainstream lenders also tend to prefer to spread their loans over several borrowers to mitigate risk rather than lending more to fewer businesses. As a result, you may discover it is hard to find a lender that can cater to your needs and offers you a flexible deal.
Speed will also be a key consideration. Invoice-based financing is a short-term solution, but it is usually sought when you need to resolve a working capital issue quickly. You may need capital to pay employee salaries, pay off a debt or leverage an unexpected opportunity. Working with a broker like Enness who can unlock liquidity and keep a deal moving in the timeframe you need will be critical for your success when you are against the clock.
Using a specialist lender is often the best way to secure high-value finance invoicing. There are several options at the top of the market, but many of the players that operate in the space require introductions or don’t offer direct contact routes – you will need to have a referral. With access to more than 500 lenders, Enness will be able to source and negotiate the best invoice finance deal for your business.
Enness specialises in brokering high-value invoice financing, a specialist and niche part of the market given the risks and complexity involved in these types of transactions. There is no minimum finance invoicing loan amount Enness brokers, but you will usually need to be in the market to borrow several hundred thousand pounds.
Clients usually turn to Enness when:
Enness will always start by understanding your needs. There are different ways to go about invoice financing, and some options may be better for your business than others. As well as the best terms and the best rates, Enness will be thinking about what financing package will be most beneficial to you and how it should be structured.
Enness can deliver negotiated options for your perusal within just a few working days. With access to more than 500 global lenders and with an ability to source, negotiate and close transactions in the minimum timeframe, Enness can help you unlock working capital in just a few days. As well as negotiating the deal, your broker will also be on hand to remove roadblocks, keep all parties focussed on closing the deal on time and acting in your best interests at every stage in the process.
In much of the market, lenders prefer borrowers to opt for an "all or nothing" approach. In other words, to be eligible, all your invoices need to be put forward to the lender who will let you borrow against them. With Enness helping you access the right lender, invoice financing will be much more flexible and suited to the needs of your business. If needed, Enness will negotiate that only certain invoices are used for an invoice financing facility: that might be a specific business line, certain clients or invoices that are more than a certain amount.
Enness has both the track record and an unparalleled network of specialist lenders to secure the most competitive and advantageous invoice finance for you.
Contact Enness to have a no-obligation chat about your needs. Enness will talk you through how a brokers can help you structure and streamline this specialist type of financing.Schedule A Callback