Introduction to Invoice Finance

Who is involved in an IF structure?

1. Invoice financier
2. The business who sells the receivable
3. The debtor

Who are the main invoice financiers?

1. Banks
2. Independent financiers
3. Private equity firms

What are the benefits of using invoice finance?

• Creates liquidity and supports cash flow by allowing faster access to funds from outstanding invoices
• Highly flexible form of finance, especially compared against other forms of borrowing

How does invoice finance work?

Firstly, the business provides the product to their customer (the debtor) and sends an invoice to them on agreed payment terms for a time in the future. The business then sends the invoice details to the invoice finance provider.

Following this, the financier then arranges for a percentage of the invoice to be made available. The debtor then pays the financier the full value. Finally, when the debtor pays, the remainder of the invoiced amount is paid to the borrower, less a service fee.

What is a Debenture?

This is a charge registered against the assets, on a limited entity or in the case of others, lending a waiver of their security over the company’s book debts.

Why do financiers like invoice finance?

• Low risk
• Lower cost of capital
• Diversified risk
• Tend to be structured to provide greater funding

In what ways do financiers receive returns?

Service Charge – The cost of having the facility in place and is either calculated as a fixed monthly charge or annual charge or a percentage of the turnover running through the account.

Discount margin – The percentage normally charged over base or Libor for the amount used when the funding is made available.