Confidential Invoice Finance

12-June-2024
12-June-2024 15:32
in Commercial
by Sam Hodgson
Confidential Invoice Finance

One of the greatest concerns for many businesses looking for invoice finance, is the damage it could potentially have on their B2B client relationships.

Understanding what the differing types of invoice finance are, and the subset of confidential invoice finance, will help you select the right product for your business needs.

As always, Clifton Private Finance are here to help.

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In This Guide

What is Confidential Invoice Finance?
What is Invoice Finance For?
The Relationship Problem with Invoice Finance
Confidential Invoice Finance for Businesses - Invoice Discounting
Confidential Invoice Discounting vs Transparent Invoice Factoring
Apply For Confidential Invoice Finance

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What is Confidential Invoice Finance?

Confidential invoice finance is a type of invoice finance that maintains confidentiality between you, the invoicer, and your customers.

It's a subset of invoice finance, which is the umbrella term for a number of short-term cashflow finance solutions that are specifically designed to provide bridging support for businesses that are stretched during the period between an invoice being issued and its being paid.

Invoice finance falls into two main categories, each split once more into two subgroups:

1

Invoice Discounting, broken into:

  1. Whole invoice discounting
  2. Selective invoice discounting

2

Invoice Factoring, broken into:

  1. Whole, or entire factoring
  2. Selective, or spot factoring

Selecting the product that is right for you depends on multiple factors, including the number of invoices you need support for, the likelihood of required future invoice finance support, and the level of transparency regarding invoice finance with which you (and your customers) are comfortable.

It is this latter concern that leads to a need for the specific nature of confidential invoice finance.

Invoice Finance Case Study

What is Invoice Finance For?

When you call on invoice finance, it is typically because your business cashflow requires a more immediate payment than the invoice terms provide.

The problem with the invoicing system, something not often seen in a direct business-to-consumer situation, is that goods or services are provided far in advance of payment. In the UK, standard invoice terms are 30 days, meaning it’s typical to allow a customer a full month following delivery before the money becomes due.

In reality, it’s even harsher. For reasonable administrative reasons, many businesses have scheduled payment dates, whereupon they process any invoices received prior to that date. When working for a business with a single monthly processing timetable, it is possible to miss the window with an invoice submission by a single day, leading to an extended period before the invoice is paid.

Confidential Invoice Finance

That’s a delay from work done until payment cleared exceeding two months!

Invoice finance provides support to businesses unable to stretch their capital and cashflow to survive during the long wait, offering up to 90% of the invoice total provided immediately, and the remaining balance covered once the invoice is finally paid.

Confidential Invoice Finance

The Relationship Problem with Invoice Finance

Businesses have an image to uphold, and that image can include looking to be financially comfortable, even when the reality is much tighter.

This can be especially true when dealing with more important customers; that is to say businesses that may be larger than your own, or ones to whom you rely on their custom for a substantial portion of income.

Many business owners, quite rightly, do not want to come across as ‘scroungers’, or ‘beggars’, constantly hassling their customers to pay early, or to split invoices down to try to make them more manageable. Asking for your customers to pay extra consideration to your business finances is a risky undertaking that will likely damage the relationship with your customer and lead to the loss of future orders. No; for most professional companies, the feeling is that you should be seen to stand on your own two feet and not have to lean on any client for support.

Invoice finance helps solve this relationship quandary, offering the financial boost that’s needed to keep the business running without pushing on the customer at all.

Invoice factoring is an invoice finance option whereby your business sells outstanding invoices (known as accounts receivables) to a third party ‘factoring’ company. This company then collects on any outstanding debt in their own name, taking over credit control and relieving you of the onus of collection.

Confidential Invoice Finance

Invoice factoring is a strong and valuable tool in the business arsenal for managing and improving cashflow; however, in utilising this service, your customers become immediately aware that something has changed.

While invoice factoring is not the same as debt collection (the differences are substantial), it can still be seen in a similar light by customers, especially those who are encountering a factoring company for the first time.

Many companies make the immediate mistake of thinking that their supplier has stepped up their invoice to debt recovery, or that they are chasing payment in some way - this can cause panic and severely damage the carefully cultivated relationship. Even if advised in advance of this change of invoice ownership, it is difficult to know how your customers might respond.

Thus invoice factoring, despite its many positives, has a significant downside. For many companies, what is needed is confidential invoice finance.

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Confidential Invoice Finance

Confidential Invoice Finance for Businesses - Invoice Discounting

Invoice discounting provides that confidentiality that’s needed for smooth supplier-customer relationships while still providing the financial cashflow support of invoice finance.

Confidential invoice discounting takes a a different approach to that of factoring - rather than selling your invoice to a third-party, you are provided with a loan that utilises your unpaid invoice as collateral. As it is a loan, there is no need to make any information regarding the financing public. Invoice discounting, therefore, is a private transaction between finance provider and your business, that will never be disclosed to your customers. 

Confidential Invoice Discounting vs Transparent Invoice Factoring

Making the choice between invoice discounting and invoice factoring isn’t as simple as just choosing between transparency and confidentiality, of course; there are multiple factors that lean towards one side or another and the benefits and disadvantages of each should be fully appreciated.

Consider also:

-      Fees and interest - There may be significant differences in the financial terms of a discounting contract vs. a factoring one. An expert broker, like ourselves at Clifton Private Finance, can walk you through those differences.

-      Speed of transfer - Most invoice finance options will make the money available rapidly, though there are still factors that can slow the transfer of money to your bank. Factoring companies, for example, will engage in significant due diligence before opening factoring accounts, which can delay the process of releasing money in the first instance.

-      Long-term viability - Both invoice factoring and discounting can be set up as long-term revolving line-of-credit facilities, but the terms of these will differ, including the maximum value of those revolving credit accounts.

-      Credit control - One significant advantage of factoring is how credit management is passed to a professional third-party with all the experience a dedicated administrative team can provide.

-      Perceived seriousness - While factoring companies are not debt management or recovery services, the perception from customers regarding a professional third body now engaged in payment collection will often make them see the situation with a greater degree of seriousness, encouraging swifter and smoother payment of any outstanding invoices.

Confidential Invoice Finance

Apply For Confidential Invoice Finance

If you are looking for help with your cashflow and think invoice finance is for you, contact us at Clifton Private Finance for comprehensive advice.

Our expert team will be able to get you the confidential invoice finance you are looking for, smoothing the application process and making sure you don’t have to wait any longer than necessary for a much-needed capital boost.

We can also help you decide what type of invoice finance is right for your business, and we compare rates and options across the market from 100s of lenders.

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