Selective invoice finance is a type of funding that can help a business’ cash flow with quicker access to the invoices they’re owed. Selective invoice finance allows businesses to unlock the value of their outstanding invoices before they're paid by customers. This means that you can access a portion of the funds tied up in your invoices without waiting for the usual payment terms.
The difference between selective invoice finance and invoice finance is that you do not use your entire debtor book to access funds. Instead, with selective invoice finance, you choose only certain invoices that you would like to advance.
As the name suggests, selective invoice finance allows you to be selective. You can handpick specific invoices that you want to finance, giving you the flexibility to choose invoices from clients with longer payment terms or those that are larger in value.
Here’s how the process works:
While selective invoice finance offers an array of benefits, it's essential to consider whether it aligns with your business's needs and objectives. Here are a few key considerations:
If your business relies heavily on invoicing and experiences occasional cash flow gaps due to longer payment terms, selective invoice finance could be a valuable solution.
Consider how your clients might react to you financing their invoices. If maintaining positive relationships is crucial, the selective approach might suit you better.
While selective invoice finance can be cost-effective in terms of maintaining operations and capitalising on growth, the associated fees should be weighed against the benefits.
Selective invoice discounting is a type of selective invoice finance that allows a business to choose specific invoices to sell to a finance provider. The business maintains control over which invoices are submitted for financing and keeps the responsibility of chasing the payment themselves.
Spot factoring is where a business sells a single invoice (or a small batch of invoices) to an invoice finance provider. This method is suitable for businesses that occasionally need quick access to cash for specific invoices. Spot factoring is a quick and targeted solution for short-term financing needs. With spot factoring, the spot factoring provider assumes the responsibility of chasing the payment.
While you have the freedom to select which invoices to finance, some finance providers might have restrictions on the types of customers they accept. This is because the creditworthiness of the customer impacts the risk associated with the financing.
Yes, in many cases, businesses can use selective invoice finance alongside other financing methods. However, it's important to communicate with both finance providers to ensure that the arrangements are compatible and won't create conflicts.
The minimum number of invoices required may vary among finance providers. Some might have minimum volume requirements, while others allow businesses to choose even a single invoice for financing. It's important to discuss this with potential finance providers.
Fees in selective invoice finance consist of a discount fee, which is a percentage of the invoice amount, and possibly other administrative charges. The exact fee structure varies among finance providers. It's essential to understand the fee structure and compare offers from different providers.