Invoice financing enables a business to borrow up to 95% of the total value of an outstanding receivable — often as quickly as 48 hours after issuing it. Once your customer pays the invoice, you’ll receive the remaining amount, minus service charges. This is an increasingly popular way for businesses to improve their cash flow, with over 40,000 SMEs using invoice financing in the UK. It’s particularly popular with businesses with long collection cycles, like transport, retail, construction and manufacturing. What’s more: if you use invoice finance, your business might not need alternative financing sources, such as loans or credit cards or overdrafts.
However, invoice financing is not regulated by the Financial Conduct Authority (FCA) in the UK — so borrowers should research providers carefully. You should also know that there are different invoice financing options — most notably, invoice factoring and invoice discounting.
To help you understand your funding options, we’ll explain the difference between the two and provide a rundown of the best invoice factoring options on the market.
Factoring allows you to earn up to 95% of the value of an unpaid invoice. The factoring company will manage your sales ledger and collect invoices directly from your customer. They’ll then deduct the costs of their services, known as a service charge, before paying you the remaining balance.
Advantages of invoice factoring
Disadvantages of invoice factoring
Invoice discounting is similar to factoring, unlocking up to 95% of the unpaid invoice, but you keep control of customer payments — this means continuing to chase client invoices. You’ll pay a service fee for this and a discount charge, which is similar to interest until the invoice is paid.
Advantages of Invoice Discounting
Disadvantages of Invoice Discounting
Invoice factoring companies charge a ‘Service Charge’ to cover the costs of chasing and collecting invoices. This is typically charged as a percentage of your business’s factorable turnover, ranging from 0.75% to 2.5%, depending upon the size of the business. The higher your turnover, the lower the percentage rate (companies with smaller turnovers will usually have the highest service fees, because they’re seen as higher-risk than the those with higher turnovers).
The invoice finance company will often charge a minimum fee (monthly or quarterly) which is based on 75-80% of the projected turnover. If a business has a projected annual turnover of £500,000 per year, and the agreed service fee is 1%, it will pay £3,700-£5,000 per year in service charges even if only £300,000 is raised by the end of the year.
Discount charges are very similar to interest payments. Whilst the invoice is unpaid, you’ll pay an interest calculated daily until the invoice is delivered — so the longer a customer takes to pay, the more interest you’ll pay. This is typically between 1% and 3% over the base rate.
The most common basic requirements are:
If you don’t meet all these terms, don’t worry. Invoice finance providers can be flexible but the amount of finance you could receive could be affected.
If you are looking for business finance quickly, you may also want to consider a merchant cash advance (where lending is paid back from your future card sales) or a business credit card which can be approved very quickly based on past card turnover.
MarketInvoice was founded in 2011 as an online invoice marketplace which matches businesses with a network of investors. MarketInvoice’s unique advantage over other invoicing providers is its focus on technology; the whole financing process for application to payment is simple, thanks to an easy-to-use online platform.
MarketInvoice has clear and transparent fees which depend upon the size of your company, expected payment dates and total invoice volume. These fees typically range from 1-3% of the invoice value. MarketInvoice’s customer service is one of the best rated in the industry, with telephone, email and online chat available. You’ll also have access to a dedicated account manager.
MarketInvoice does not offer invoice factoring, only offering invoice discounting. If you are looking to outsource invoicing and collections, look elsewhere.
MarketInvoice’s products include:
Aldermore was founded in 2009 and focuses on small and medium-sized businesses in the UK. The firm has over 37,000 business customers and have issued funding worth £2.2 billion.
Aldermore is similar to other banks in the invoicing finance sector, with a traditional offering. However, Aldermore’s 90% approval rating is one of the highest in the industry, thanks to a flexible and tailoring financing approach, making Aldermore a strong choice for those rejected elsewhere.
Customer service support can be accessed by email or telephone during business hours and Aldermore has SME offices across the UK, in Leeds, Manchester, Birmingham, Surrey, Peterborough and Reading. Aldermore will also assign you a dedicated Relationship Manager, based locally if available, who will review your account regularly.
Aldermore Invoice Finance offers a complete range of invoice financing, including both discounting and factoring. Bad Debt Protection is also available on the following services:
Bibby Financial Services was founded in 1982 and offer invoice financing around the world.
Its parent company is one of the oldest family-owned businesses in the UK, founded in 1807 when John Bibby began his career as a shipowner. The business has survived and grown by focusing on building strong relationships with customers, evidenced by a 93% client satisfaction rate.
Bibby Financial Services has fees which vary depending upon the size of your business, your industry and how much funding is required.
Customer service is accessed by calling one of Bibby’s 18 office locations in the UK within UK business hours. The service also includes email, chat support on via the website and access to a dedicated advisor.
Bibby Financial Services offers a full range of products, including both Invoice Factoring and Invoice Discounting. Bad Debt Protection is also available on the following services:
RBS Invoice Finance is part of the Royal Bank of Scotland and is one of the largest invoice finance providers in the UK. Its invoice finance offering centres around Facflow, an online financing platform. Although Facflow’s interface is very dated, it’s a powerful system which enables an entirely paperless workflow. Plus, RBS Invoice Finance offers full training on the system as standard.
Unfortunately, the level of customer service leaves something to be desired — with bad online reviews focusing on slow response times and complicated contracts. However, you do get access to your Relationship Manager.
RBS Invoice Finance offers 2 main products, with additional specialised products for sectors available on request:
Ultimate Finance is one of the newest companies in the invoice financing industry, launching in 2011. It focuses on high-quality customer service, offering a dedicated specialist relationship manager, telephone support during UK business hours and online chat. Ultimate Finance also provides an online portal, called E3, to manage your account easily. With an exceptionally high Trustpilot rating of 4.9 out of 5, other businesses specifically praising the quality of the relationship managers.
Ultimate Finance publishes most of the relevant terms on its website, but service fees and discount charges are not disclosed.
It’s important to note: Ultimate Finance do not offer invoice discounting, instead only focusing on invoice factoring. If you are looking to manage your own invoicing and collections, look elsewhere.
Hitachi Capital is one of the world’s largest factoring companies with over 800,000 customers. Hitachi Capital’s customer service is its biggest advantage, with a dedicated Relationship Management team available to visit your offices and review your situation. Telephone and email support are also available during UK business hours.
For startups and SMEs, the creatively-named ‘‘Inspired Cashflow’’ is ideal. There is no long-term contract and the fees are very transparent. You’ll pay a one-off setup fee (£250), followed by a percentage of the invoice. This service fees range from 0.45% for large businesses over £10 million, up to 5% for small businesses.
Hitachi Capital offers a complete range of products, including:
Credit protection is available for all these services, with up to 90% of your debt protected against insolvency or non-payment.
Barclays is one of the biggest banks in the UK, with over 300 years in the financial services industry. The firm’s invoice financing product is partially provided by MarketInvoice, who we reviewed earlier in this article and recommended for high-quality customer service and an online portal. However, the products for larger businesses (such as Confidential Invoice Discounting) are directly offered by Barclays, who have problematic reviews online.
This, unfortunately, makes Barclays offering confusing for SMEs and difficult to review — we’d advise that customers speak to an advisor to clarify or go direct to MarketInvoice.
For Barclays’ corporate offering, things are clearer. It includes:
Lloyds is one of the ‘Big Four’ banks in the UK with a well-known brand and national branch network. Through its commercial factoring arm, Lloyds offers a wide range of products with a range of factoring types available, including specialist funding solutions for many industries, such as construction, recruitment and healthcare.
Lloyds offers comprehensive but standard customer support, being available via telephone during UK business hours or by visiting a regional office for a meeting with an invoicing specialist. You’ll also be assigned a named Client Service Manager.
Whilst its online platform is dated, it is still powerful. This portal allows you to see a breakdown of available capital and question any disapproved funding instantly. You can also request funds and see account statistics.
Lloyds Commercial Factoring offers a range of products, including invoice factoring and invoice discounting. Both these products support multiple currencies and bad debt protection can be added if your turnover exceeds £200,000.
Close Brothers Invoice Finance is part of the Close Brothers Group, one of the leading merchant banks in the UK. The firm is focused on larger businesses with a turnover above £500k per year, so SMEs and startups should look to another finance provider. As a result of this enterprise focus, Close Brothers adopts a fee structure which is bespoke to your business, with fees only being disclosed when the financing is arranged.
In return, you get comprehensive customer support, with a dedicated Client Manager being assigned to your account. Plus regular face-to-face meetings, phone calls or emails are available upon request.
The heart of the Close Brothers’ offering is the IDeal platform. This platform is one of the most complete we’ve reviewed, with full control over your invoice financing. It also automatically reconciles incoming factored payments with your existing invoices, via its integration with over 285 accountancy systems.
Close Brothers offers:
HSBC is one of the world’s largest banks, with operations in 65 countries and over 40 million customers. Its offering is tailored to companies with a high projected turnover of at least £500k. Yet businesses with this sort of turnover can expect an exceptional level of customer support and a fully-featured online portal, called RF on HSBCnet.
For its factoring offering, HSBC offers a dedicated Credit Controller to monitor your sales ledger, as well as an account manager to ensure you are making the most of the factoring. Credit protection is also available, with up to 100% of the invoice being recoverable after 120 days past invoice due date. An in-house legal services team will also pursue unpaid invoices for no additional charge should a customer exceed their credit limits.
If you choose HSBC’s discounting offering, you’ll retain full control of your sales ledger, work with an account manager and have the same high level of optional credit protection.
On top of all this, businesses can also opt in to export invoice finance, allowing factoring on international invoices to over 200 different countries. Financing can be provided in any major world currency, shielding your business from currency fluctuations.
Skipton Business Finance is part of Skipton Building Society, one of the UK’s oldest building societies. What Skipton offers is unique in this review, thanks to its localised service. Each of the offices in Leeds, Manchester, Birmingham and Bracknell, has its own underwriting and account management teams. This means decisions are made at the local level as a part of a long-term relationship and financing is awarded based upon the merits of individual businesses.
Skipton also offers a diverse range of products, including a fully transparent offering called ‘Skipton Select’. It charges no discount charge on invoices, no annual fees and no fees for transfers, instead of charging a facility fee per invoice depending on your turnover. For example, for a new business with a turnover from £0-£100,000, the minimum monthly fee would be £200, with a fee per invoice of 3.50%. For an established new business with a turnover from £750,000-£1m, the minimum monthly fee would be 500, with a fee per invoice of 1.35%.
Skipton’s other offerings include:
Metro Bank is a relative newcomer to the British high street, being the only new high street bank to open in 150 years. Despite being new, it’s made a huge impact on banking in the UK, with a unique combination of best-in-class online banking and branches that are open 7 days a week.
Despite this revolutionary approach to high street banking, Metro’s invoice finance offering is disappointingly traditional. The terms, through friendly to SMEs, are commonplace in the industry. Further, Metro’s software is not the same quality as the rest of its offering; using the industry-standard E3 system used by Aldermore and others. Finally, invoice finance customer service is not available in any Metro branches.
Metro’s products include:
ABN AMRO Commercial Finance is part of ABN AMRO Group, a Netherland’s based banking giant. Its fees and clear and transparent, with costs typically being determined by turnover and volume.
Clients can expect a level of customer service that’s amongst the best in the industry, with support available via telephone and email. You’ll also have use of an online portal to manage your account and access to a dedicated account manager.
ABN AMRO Commercial Finance offers a comprehensive range of products, with Bad Debt Protection with up to 100% cover being an optional add-on:
Copyright © ALL RIGHTS RESERVED 2021
Merchant Savvy is a division of VUBO Ltd (Company Number 09017066).
Address: Spaces, 9 Greyfriars Rd, Reading, RG1 1NU.