Selective invoice finance is a form of invoice factoring that allows businesses to release funds from their outstanding invoices. It can help businesses to continue trading and even to expand whilst avoiding the need to limit their customer payment terms.
Invoice factoring is a flexible solution that takes many forms, including more selective invoice financing. To help you understand if any of these factoring solutions could be right for your business, we’ve summarised the keys facts you need to know about selective invoice finance.
Invoice finance is a way for businesses to borrow money based on what they’re owed by their customers. Unpaid invoices, also known as accounts receivables, often take some time for customers to settle, leaving businesses with cash flow gaps and working capital deficits.
Invoice finance, including both invoice discounting and invoice factoring, allows businesses to sell their accounts receivables to factoring companies who charge a small fee and then take responsibility for the collection of the outstanding sum. This means that businesses can get the money they’re owed almost immediately, all without having to chase their customers for payment.
To factor invoices, you need to reach out to a factoring company. If you meet their criteria, they will agree to purchase your outstanding invoices either on a wholesale or selective basis, taking responsibility for the collection of the invoiced amount and providing you with capital much more quickly than you might otherwise expect to receive payment from your customers. They will pay you the majority of your invoiced amount upfront, with the remaining paid minus their fee once the customer has settled the account in full.
Selective invoice finance is very similar to conventional invoice factoring, but rather than dealing with full sales ledgers it allows businesses to sell individual unpaid invoices at a discount in order to release funds quickly and efficiently.
Spot invoice finance, selective invoice finance, and single invoice finance are all one and the same. They all refer to the same finance product, which allows businesses to choose which invoices they want instant invoice factoring for.
Absolutely – from conventional invoice factoring which deals with a greater volume of accounts receivables, through to invoice discounting and reverse factoring, invoice finance is designed to be a flexible solution to help improve cash flow and free up working capital.
Also known as single invoice finance and spot factoring, selective invoice finance offers businesses the chance to release funds that are tied up in individual unpaid invoices.
Unlike other forms of invoice finance, businesses are not required to sell their entire sales ledger. Funds can be accessed as and when they’re required, by taking a more selective approach to selling accounts receivables.
The select invoice finance process is simple, and usually involves just three steps:
Step 1: Businesses using selective invoice financing can pick and choose the invoices they send for factoring, having agreed rates and charges at the beginning of the arrangement.
Step 2: A significant portion of the invoice value is released upfront.
Step 3: The remaining balance, less service fees, is remitted once the customer has paid the outstanding sum.
Whether any individual finance solution is suitable for a business will depend on their company structure, billing practices, industry area, and financial status. With this in mind, it’s important to understand the advantages and disadvantages of selective invoice financing before striking an agreement with a factoring company.
First things first, it’s important to understand that invoice financing comes at a cost. Factoring companies charge fees which usually align with between 1% - 5% of the total value of the invoices involved. Despite this, by forgoing some of the invoiced value your company can see the vast majority of the money it’s owed paid upfront.
It’s also important to note that invoice factoring can help businesses to focus on their sales and operations rather than billing, as responsibility for collecting the accounts receivable falls to the finance company. Whilst this can be of benefit, in the case of recourse factoring arrangements the responsibility for outstanding funds could be passed back to the business who sold the invoice.
Ultimately, invoice factoring can help to improve cash flow and with selective, single and spot invoice finance it’s possible to manage finances in a way that works for your business.
Selective invoice finance could help your business to access the working capital it needs to keep growing even when customers are slow to pay. To find out how invoice factoring could help improve your cash flow, and to compare the UK’s top invoice finance providers, try using our quick and simple comparison tool.
Managing a business is hard enough without chasing clients for payment, so secure a better deal for your business by finding an invoice finance provider today.