View more on these topics

The invoice of reason

Invoice finance – historically termed factoring – has begun to proliferate once again as financial advisers realise its advantages over other forms of debt and as a means of planning cashflow.

Over £100bn of invoices now run through those financial institutions which offer the service and the amount is increasing at the rate of 6.3 per cent a year. Around 33,500 UK businesses use invoice finance as an alternative to more traditional funding methods.

The River Communications Group director Howard Barkley believes the industry is set for another significant growth spurt. He says: “The term factoring was perceived as slightly disparaging and the impression was that those companies using it were somewhat less capable to support themselves. However, this concept has faded over time as more and more businesses have realised the substantial benefits of the system.

“The word change has also helped establish invoice finance as a credible option, plus dedicated divisions have sprung up within many of the leading banking institutions.”

IFA Graham Associates director Tim Graham says: “I have increasingly been advising many of my clients to consider invoice finance, much more so than in the past. It is now viewed as a secure and credible way of maintaining a steady flow of income against sales invoices and as a means of securing less restrictive debt.”

Invoice finance consists of two main divisions – invoice discounting and factoring. Invoice discounting is seen as a confidential way of gaining credit against outstanding invoices. The business still appears to be chasing its clients for the outstanding invoices, which are on the business&#39s headed paper. Simultaneously, the business has secured the money from the institution offering the invoice discounting service. In effect, the business has a loan against its outstanding invoice.

Barkley says: “Many businesses prefer this option as their clients have no insight into their financial workings, as it is strictly confidential.”

Factoring is slightly different in that the business exposes some of its financial dealings with its clients as it is apparent that it is using a third party to chase its debt. The invoices are sent on the factoring company&#39s headed paper and all subsequent follow-up calls are by them. Many small to medium-sized enterprises use the service, which is ideal for companies with annual turnover under £10m.

Michael Marks, a partner at accountant KBSP, says many businesses that pay their staff weekly yet are paid monthly by their clients benefit from factoring. He says: “Not only is cashflow controlled but the credit terms afforded a company that has factoring are often far more preferential and less hassle than constantly going to the bank to organise and manage an overdraft. Banks often prefer to lend in this manner as opposed to debenture lending, which used to be so popular.”

Many banks and lenders now offer commission to accountants and IFAs introducing business to their services. Barkley says: “Financial consultants are still deemed the most credible source of advice by most businesses. Research shows that organisations look to IFAs and accountants to steer them through the melee of red tape, financial alternatives and to give them a clear and strategic growth route. Businesses are more likely to look favourably on invoice financing if it is recommended by their fiscal advisers.”

Perhaps the most important aspect of invoice finance is that 90 per cent of invoices are paid within 24 hours, giving the business its planned cashflow. The balance is paid as customers settle their accounts. It also has significant benefits over an overdraft as it is flexible. Interest is only paid on any outstanding amount.

Barkley also believes there are substantial psychological benefits as well. He says: “The money businesses are borrowing against is their own anyway. They have earned it and are just awaiting payment. Thus, they do not believe that they are in hock to the bank, just that the bank is helping improve their cashflow. In essence, it is an alternative and often favourable means of funding, often for expansion purposes.”

Graham says: “Invoice finance is gaining in popularity, prestige and significance. It really can be an excellent way to help grow a business or secure funding. Whatever your circumstance, it is worth investigating it options.”


Mortgage 2000 – Mortgage Express Investment Buy-to-Let Discount – 5 Years

Type: Discounted rate buy-to-let mortgage Discounted term: Five years Discount: 0.61% Payable rate: 4.99% Minimum loan: £60,000 Maximum loan: Up to 85% of valuation subject to a maximum of £300,000, up to 75% of valuation subject to a maximum of £500,000, up to 70% of valuation subject to a maximum of £1m Income multiples: Monthly […]

Gissings launches employee benefits website

Employee benefits IFA Gissings has launched a new website for its clients offering its latest product literature and demonstrations of each service area online.

Standard stands on its record

Financial security, customer service and trust. These are the brand values on which Standard Life has been built and they remain the values to which the company remains fully committed.In this respect, Standard Life is the same company it was a week, a month or a year ago.What is also unchanged – and I cannot […]

Hargreaves and Lansdown take £1m pay cuts

Peter Hargreaves and Stephen Lansdown, the two founders of leading investment IFA Hargreaves Lansdown, both took £1m pay cuts last year, even though the firm&#39s profits rose by 10 per cent.Chief executive Hargreaves and chairman Lansdown both saw their salary fall by over 40 per cent to £1.35m in the year to June 30, 2003 […]

Managing customers in drawdown

By Lorna Blyth, Investment Marketing Manager Delivering a decent drawdown review process takes time and resources. This article looks at how you can manage drawdown clients in a more cost-effective way. Most advisers are seeing an increase in drawdown clients following pension freedoms. Often these are clients with lower fund sizes, which means advisers are […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm