Invoice Finance

Invoice Finance

When a short-term loan is extended by a financial institution to a borrower, based on unpaid invoices, the process refers to invoice financing. In this type of financing, a company meets its short-term liquidity needs based on the generated invoices, which the customer hasn’t paid for. The selective invoice financing is a unique way of invoice financing which does not involve any agreement for the whole sales ledger. Selective invoice financing is an asset-based finance facility, which enables beneficiaries to choose the invoice he would like to have advanced; thereby making it flexible to adjust cash flow, by either selling a single invoice or selecting a few at a time, based on the business needs.

Selective invoice financing is more beneficial than other forms of invoice finance – like invoice factoring or invoice discounting – as it is more transitionally simpler since users usually get 100 per cent of the invoice advanced before paying a fee. Also, by individual financing of invoices users can avail more advances.

Lenders or financial institutions extending the loan often prefer established business with creditworthy customers for selective invoice finance, since the risk of the lender in such financing depends on the customers and not on the beneficiary’s business. In other words, businesses which have healthy turnover, years of trading history and invoices large multinational companies are more likely to avail selective invoice financing; and start-ups dealing with other Small and Medium scale Enterprises (SMEs) have to opt for other methods of invoice financing – like invoice factoring.

Invoicefinance benefits lenders as unlike extending a line of credit that can be unsecured and can even leave little recourse if your business does not repay what is being borrowed, invoices can be used as collateral for invoice financing. Additionally, lender also limits its associated risk by eventually not advancing the overall amount of the invoice and to the borrowing business.

Advantages of invoice finance

• This type of invoice financing is more flexible than other forms of business loans or overdrafts and enables beneficiaries to select which invoice to fund.
• Lenders can make faster decisions to lend against invoices. Beneficiaries can avail up to 90 per cent of the invoice value, within 24 hours.
• The funding from the lenders grows depending on the total turnover of the company.
• Companies can avail a greater level of borrowing against assets.
• Selective invoice financing can also help in the reduction of the risks of late payments or defaulted invoices.
• Selective invoice financing includes no long term contractual commitments and companies can use such services as and when they require.
• With a single fee charged on the value of the invoice, the charges included in selective invoice finance are usually simple and transparent.

Import invoice finance typically helps businesses to overcome certain challenges which may encounter while trading overseas. When a company or business has to pay out for commodities, some amount has to be delivered to them in advance, and in addition the time-delays can cause immense strain on company’s working capital. This specialist form of trade finance results in effectively speeding up the payment cycle and this is possible by allowing the importer or buyer to raise capital before receiving of goods actually takes place.