In my opinion, Invoice Finance is the most powerful and most underestimated product in the commercial finance armoury. Why – because this product can be applied to a substantial number of businesses across the globe, in all phases of evolution. Funding lines can be secured for startups, accelerated growth, assisting with acquisitions, facilitate a management buyout, turnaround (or distress), stabilisation, etc.

So what exactly is Invoice Finance – a revolving line of credit based on your outstanding invoices / accounts receivable ledger.

Let’s look at the basic fundamentals of how to qualify –

  • Business to Business (B2B) sales
  • Products or services are completed and delivered upon raising an invoice
  • Credit terms are offered to clients / debtors for payment of your invoice 

The qualification process covers a substantial number of businesses across the globe. So how does it work – 

  • Raise your invoice for completed products or services and issue to client
  • Request funding from your Invoice Finance provider by uploading your accounts receivable ledger (and with some providers a copy of your invoices)
  • Financier advances up to 85% of the invoice value immediately, with the balance held in reserve / retention awaiting final payment from your client
  • Your client / debtor makes payment of the invoice in full, then the balance of funds is released less fees and charges – depending on the provider your debtor pays either directly into your account or an account controlled by your lender

What are some of the benefits Invoice Finance can create:

  • Ability to grow with the knowledge that funding is readily available 
  • A funding line that naturally grows with your business
  • Confidentially meet supplier, payroll and statutory obligations with an accelerated cash cycle
  • Bring forward cash flow to negotiate prompt payment discounts to suppliers
  • Buy stock in bulk at reduced cost

Variations in product offerings across the market are somewhat significant and dependant on numerous factors (financial analysis, strength of debtors, concentration limits with clients, trading history, industry, etc). Advancement on the product and underlying structures have been greatly enhanced by cloud base accounting and live streaming of bank feeds. This provides lenders with a view access to your operation and unlocks significant flexibilities and reduced reporting / administration requirements.  Gone are the days of a labour intensive, high touch product that demanded considerable resources and sophistication from the applicant.

So what does a market leading Invoice Finance facility look like –

  • True line of credit secured against your accounts receivable ledger
  • No change of bank accounts to a financier control or segment account – debtors continue to bank into the existing company accounts
  • No notice to debtors that invoices have been assigned or novated to a financier
  • No significant administration or daily processing requirements 
  • Upload accounts receivable ledger to access / unlock additional funding
  • Pay down your advances when cash flow permits – ideally when your clients pay their invoices
  • Concentration limits of roughly 30%
  • Progress claims can be funded – for the right applicant

Industries that typically use Invoice Finance range considerably and so to does the financiers risk appetite and limitations.  Realistically there is a funder in the market that can cater for all businesses that meet the very basic funding requirements.  Below is a very basic list of industries that I frequently assist clients in securing Invoice Finance:

  • Wholesale
  • Transport
  • Manufacturing
  • Labour Hire
  • Building & Construction
  • Civil Services
  • Plant Hire
  • Engineering
  • Agriculture & Primary Producers

The biggest thing for businesses to consider when looking at Invoice Finance is that it certainly is not a one size fits all approach.  The variations across lenders, product offering and commercial approach is substantial. 

This is where Atlas Debt Advisory kicks in and its Managing Consultant with over 25 years of experience helping clients across Australia find the right fit for their working capital needs.  We work with the market leading financiers across the country to ensure that we can deliver the right solution.

Feel free to reach out if you would like Atlas Debt Advisory to provide a free educational training session for your firm, to obtain a more in-depth product understanding.