Selective invoice finance is a type of invoice financing that allows businesses to select and finance specific invoices or accounts receivable, rather than financing their entire sales ledger.
Invoice financing, in general, is a financial arrangement where a business sells its unpaid invoices to a third-party finance provider (a factor or a lender) at a discount in exchange for immediate cash flow.
Selective invoice finance, as the name suggests, provides businesses with the flexibility to choose which individual invoices they want to finance, rather than committing to a full ledger.
Here’s how selective invoice finance typically works
1. Selection: The business chooses one or more invoices they want to finance. These invoices represent the outstanding payments from their customers.
2. Application: The business submits the selected invoices to the invoice finance provider for approval. This normally happens via the lenders portal and is incredibly simple.
3. Verification: The finance provider conducts due diligence on the invoices and the creditworthiness of the customers who owe the money.
4. Advance: Once approved, the finance provider advances a percentage of the invoice’s value to the business, usually ranging from 80% to 95%, depending on the specific agreement.
5. Payment: The finance provider takes responsibility for collecting payment from the customers on the selected invoices.
6. Final Payment: After the customers pay the invoices, the finance provider deducts their fees and charges, and any advanced amount not initially paid to the business. This fee is normally a simple bundled fee making it one of the simplest forms of finance. The remaining portion of the invoice, minus fees, is paid to the business.
Selective invoice finance offers several advantages, including..
1. Flexibility: Businesses can choose which invoices to finance, allowing them to address cash flow needs as they arise.
2. Cost control: Businesses can control the cost of financing by selecting only high-value or slow paying invoices, which can make it more cost-effective compared to financing their entire sales ledger.
3. Quick access to funds: Selective invoice finance provides businesses with a rapid source of working capital without waiting for customers to pay their invoices.
4. Reduced risk: Finance providers often take on the responsibility of credit control and debt collection, reducing the business’s exposure to bad debt. This can also be structured with little or no security attached.
However, selective invoice finance may be more expensive on a per-invoice basis compared to traditional invoice financing for the entire sales ledger. It’s essential for businesses to carefully assess the costs and benefits and choose the right financing option that aligns with their cash flow needs and financial objectives.
How can I set up a Selective Invoice Finance Facility?
Firstly, the business will need to get in touch with Pinnacle. You can do this using the enquiry form at the bottom of this page. One of the finance brokers will listen and get to know how your business operates. Understand the future plans in relation to turnover, projected work, and where you want to be in 12-24 months’ time. The broker will then gather the relevant information from you. Approach the most relevant finance companies for you and present the offers to you. Typically a selective invoice finance facility can be set up in as little as 48 hours making this a fast finance option. Saving you time and money.
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