What Is Selective Invoice Finance? Explained

23-May-2024 15:16
in Commercial
by Sam Hodgson
Selective Invoice Finance

One of the greatest problems to face small businesses (and even large ones), is that of cashflow.

Having the available capital on hand to pay your financial responsibilities as the months pass can be a constant juggling act between your outgoings and timing your invoices.

When waiting for 30, 60 or even 90-day invoice terms to pass, or worse, a customer drags their heels on making a payment that’s past due, businesses can fall deeper and deeper into a cashflow crisis.

Selective invoice financing forms part of the suite of invoice finance products that’s here to help.

To get personalised advice on which type of invoice finance is best for you, and a comparison of rates and terms from across the market, book a consultation with us today. 

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Table of Contents

Invoice Financing - An Overview
What is Selective Invoice Financing?
Why Choose Selective Invoice Financing?
Selective Invoice Financing FAQs
How To Apply 

Invoice Financing - An Overview

Invoice financing covers a range of slightly different products with a similar aim - to ensure businesses have the cash flow to cover their responsibilities while waiting for invoices to be paid.

There’s no one invoice financing product, but multiple ways to finance invoice-related cash flow.

These break down into the main groups of invoice discounting and invoice factoring and, within those, the idea of whole or selective invoice financing.

Whole invoice finance is typically a longer-term arrangement that provides a line of credit for businesses to draw on when invoice payment delays would be difficult to weather, while selective invoice finance offers a one-shot payment of a single invoice that’s particularly urgent.

Selective Invoice Finance

What is Selective Invoice Financing?

Selective invoice finance is a type of invoice finance that offers a one-shot payment of a single invoice that’s particularly urgent.

Broadly speaking, invoice financing is split into two main distinct groups: invoice discounting and invoice factoring.

In the first, a loan is provided leveraged against the business accounts receivable; in the second, the accounts receivable is sold to a factoring company who recover the outstanding amount on your behalf.

There are pros and cons with both systems, and it’s worth understanding them in greater detail before you enter into an invoice finance arrangement. Check our in-depth guide to the differences between invoice discounting and factoring.


Selective Invoice Discounting

Selective invoice discounting, sometimes called spot invoice discounting or single invoice discounting, is a subset of invoice discounting that allows a business to select from their outstanding invoices (accounts receivable) and receive a payment early to cover them.

Selective invoice discounting is essentially a business loan that utilises the chosen accounts receivable as collateral.

Money is loaned from the lender to you under the terms that once the invoice is paid, the loan is repaid in full, along with any interest and fees. Most selective invoice finance products offer between 75% and 95% of the invoice total.

Read more about the pros and cons of invoice discounting.


Selective Invoice Factoring

Like selective invoice discounting, selective invoice factoring, or spot factoring, is a form of invoice financing where one or few invoices are chosen from the whole spread of accounts payable and used for the finance.

The main difference between these two types of selective invoice financing is that with discounting, the product is invisible, and your customer has no awareness that you have chosen to take out invoice financing; with factoring, ownership of the invoice passes and the customer will pay the factoring company directly, meaning they are fully aware of your engagement with the service.

Many businesses avoid invoice factoring to maintain good relationships with their customers, as some look at the move to a factoring company akin to debt recovery, even though this is not the case.

In fact, it is important to note that factoring should never be used as a debt recovery process as ultimately, the onus on the invoice being paid still resides with you as the originating business.

Invoice Finance Case Study

Why Choose Selective Invoice Financing?

When looking at invoice financing, businesses need to make the choice between a longer invoice financing option, or a single one-time selective invoice finance loan.

Not only that, but when looking at whole invoice finance, there’s a further choice between invoice discounting and invoice factoring to consider.

Selective invoice financing is best for companies looking for a quick solution to a short-term cash flow problem that is unlikely to repeat itself in the short- to mid-term. This is typically when one or two invoices are of particular importance.

Selective invoice financing is best when:

  • The need for invoice financing is a uncommon and not ongoing.
  • The time and administration needed taken for a longer term arrangement to be setup is unwanted.
  • Cash is needed immediately.

In contrast, whole invoice finance can be arranged as a line-of-credit arrangement that enables a business to dip-in when needed if invoices often need to be cleared before their payment terms have passed.

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Selective Invoice Finance

Selective Invoice Financing FAQs

Q: Can I select more than one invoice, or more than one customer?

A: Yes. The choice of what invoices you submit for financing is completely down to you, and can be a spread of large or small invoices from different customers. Selective invoice financing means that only part of your accounts receivable, rather than the whole, is used.

Q: How much does selective invoice financing cost?

A: Depending on your provider, selective invoice financing typically costs between 3% and 5% of the invoice total. At Clifton Private Finance, we can shop around on your behalf to find the best possible rates on the market.

Q: Is there a minimum size for selective invoice financing?

A: There is no minimum threshold set in stone, making selective invoice financing a viable option for businesses of any size.

Q: Can I get selective invoice finance as a sole trader?

A: Yes; if your credit score is in a good condition, you will be able to use selective invoice finance as a self employed sole trader.

Q: Does selective invoice finance work as debt collection?

A: No. While aspects of invoice factoring, including spot factoring, are similar to using a debt collection agency, such as the selling on of the debt and relinquishing of credit control, ultimately the ultimate responsibility for seeing the debt paid remains with you.

Q: How do I get selective invoice finance?

A: Speak to us at Clifton Private Finance to discuss the options available to you. 

How To Apply

At Clifton Private Finance, we have a team of experienced advisors who will be able to discuss your immediate cash flow situation and help you find the invoice finance or other financial support your business needs. Contact us today to get started.

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