Single Invoice Finance

Companies with business customers can use a range of services to raise money against selected invoices, rather than financing their whole sales ledger as with conventional factoring and invoice discounting facilities. Single invoice discounting is offered both by specialist finance providers and by online, auction-based platforms, where groups of investors compete to buy the invoices, which can drive down the cost of finance.

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The Informed Funding two-minute guide: Single Invoice Discounting

• How does Single Invoice Discounting work?
  Single Invoice Discounting enables companies to receive cash advances against specific invoices rather than against their entire sales ledger. As with conventional invoice discounting, companies that sell to business customers are able to raise a percentage of the value of the invoice from a finance provider and thereby gain early access to the cash that they are owed by their customer. When the invoice is ultimately settled, the advance is repaid along with the fees.
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  • Why choose Single Invoice Discounting?
    This type of invoice discounting offers a more flexible option than a conventional facility since your company won’t be obliged to use it for every invoice, there are no lock-ins and you will only pay when you use the service. Funding can often be provided very quickly, with some companies able to advance funds within 48 hours.
  • How much can I borrow and for how long?
    Single Invoice Discounting is usually offered for a maximum of 90 days, after which the borrower will need to repay the advance from its own resources if it has not already received payment from the customer. Borrowers typically receive advances of between 80% and 90% of the invoice value.
  • How is the borrowing secured?
    In most cases, the borrower will have to assign the invoice to the lender as security, so that the lender gains the right to recover any sums owing due to non-payment. In addition, some providers will ask borrowers to provider a personal guarantee as additional security for any sums advanced under Single Invoice Discounting arrangements.
  • What if a lender already has a floating charge over my accounts receivable?
    If an existing lender has a charge over your company’s accounts receivable, most finance providers will require a waiver from your existing lender to release the invoice in question so that it can be assigned to the invoice discounter as security.
  • What does it cost and what fees are payable?
    The costs vary between providers but there is typically a one-off admin fee to put the arrangement in place – usually a few hundred pounds – and then a charge each time you use it. With conventional providers, the cost of finance can range from 2%-8% and upwards per 30-day period and will depend to a large extent upon the creditworthiness of the end-customer and the quality of the borrower’s credit control function. There are also online platforms that offer single invoice discounting on an auction basis – with these providers, a range of funders compete to advance finance, which can result in a lower cost of capital to the borrower. These platforms will charge a cost of finance (payable to the funders) and a fee payable to the platform for each transaction. All-in transaction costs on online platforms typically range from 2%-4% per 30-day period.
  • Will my customer know I have raised finance against the invoice?
    Not necessarily but in practice the answer is often yes. Some providers will demand that you tell your customer that you have assigned the invoice to the funder and you will also usually have to provide details of a trust account, set up by the finance provider, into which your customer must pay the sum it owes. This allows the finance provider to deduct its fee before forwarding the balance to you at the end of the transaction.
  • What happens if my customer doesn’t pay the invoice?
    Unless you have taken out credit insurance your company will remain liable for repaying any sums owing to your lender in the event of non-payment by a customer.
  • Need to know:
    • Single Invoice Discounting is particularly useful for companies that have large one-off orders, non-repeat customers or very seasonal trading. It can also be used by companies that sell to both businesses and retail customers – these companies would not normally be considered for a conventional “whole turnover” factoring or invoice discounting facility.
    • Borrowers will usually need to provide proof of an order, proof of delivery and an invoice that includes the details of the finance providers trust account in order to be able to access finance via Single Invoice Discounting.
    • Single Invoice Discounting will not be suitable for businesses which have long term contracts, staged payments, a history of disputed invoices or contracts with retention clauses built in.

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