Invoice Finance | 2021 Guide

Invoice Finance, Factoring and Invoice Discounting

Invoice Finance

Welcome to TFG’s invoice finance hub. Find out how our team can help your company unlock working capital from domestic and international invoices, on both a recourse and non-recourse basis. Alternatively, learn more about the different types of invoice finance: discounting and factoring, through our latest research, information and insights, right here, in our invoice finance hub.

What is invoice finance?

Invoice finance is a common form of business finance where funds are advanced against unpaid invoices prior to customer payment. Invoice finance houses include banks, alternative investment providers and private lenders, used by businesses who trade both domestically and globally. There are two types of invoice financing methods; discounting and factoring. Invoice finance is a type of receivables finance (more info on receivables here).

How can invoice finance benefit my business?

  • The invoice financier will sometimes take on the responsibility to look after your sales ledger which means the business owner can have more time to focus on the business
  • An invoice financier will conduct due diligence (including credit checks) on customers, which reduces the risk of not receiving funding
  • Invoice discounting can be done on a confidential arrangement, which means that your customers will not know that you’re using a finance house; this can help protect your reputation
  • Invoice finance allows you to maintain a good relationship with your customers, as you can fulfill larger orders on time without worrying about cash flow and working capital problems

Diagram: How invoice finance (receivables purchase) works

Receivables Discounting Diagram

How can we help?

The TFG’s invoice finance team work with the key decision-makers at 270+ banks, funds and alternative lenders globally, assisting companies in accessing factoring and discounting facilities.

Our team are here to help you scale up to take advantage of both domestic and international opportunities. We have product specialists, from commodities to finished goods.

Often the financing solution that is required can be complicated, and our job is to help you find the appropriate invoice finance solutions for your business.

Read more about Trade Finance Global and our team.

Our Invoice Finance Client Case Studies

MW Beers & Co.

Base Oil Trader

Clothing Company

Machinery Trader

Browse Case Studies

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Get started – talk to our team

Contact Information

If you have an invoice finance enquiry, please use the contact form.

Otherwise, you can reach us on the email addresses below.

Trade Finance Global
201 Haverstock Hill
Second Floor
London
NW3 4QG

Telephone: +44 (0) 2071181027

Invoice & Receivables Finance Enquiries



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Want to learn more about invoice finance?

You’ve come to the right place. Here you can find our latest features, research and trending articles in the world of invoice finance. Sit back, and catch up with the latest thought leadership and interviews from the TFG, listen to podcasts and digest the top stories in invoice finance right below.

From the Editor - Invoice Finance Insights

FCI reports 6.6% drop in global factoring statistics in 2020 The first estimates for the factoring industry worldwide in 2020 have been announced today by the FCI’s Peter Mulroy. Factoring declines were recorded in most regions except Asia Pacific.
Can we eliminate paper from negotiable instruments and documents of title? By integrating the DLPC structure into trace:original documents, the benefits of a payment undertaking supported by BAFT’s best practices can be enjoyed while avoiding the potential drawbacks of a closed consortium.
Model Law on Factoring: UNIDROIT’s Approach to Receivables Financing Factoring, as an important method to extend credit, is a type of financial transaction where the creditor assigns its receivables to an assignee at a discount. In recent years, there has been a large growth of factoring transactions around the world.

Latest Insights

Videos - Invoice Finance

Invoice Finance Podcasts



Hub Articles

How to use Invoice Financing for your Small Business

Invoice factoring for small businesses is fairly straightforward. As an example, an end customer might not pay the £100,000 invoice issued to them for up to 90 days, but your company needs the funds in 2 weeks, in order to pay for business expenses and salaries.

Read more →

How to use Invoice Financing for your Small Business

Why should I compare invoice factoring or invoice discounting providers?

There are several bank and non-bank providers of invoice finance, from large instutions to small alternative funders, each offering different propositions and solutions for customers.

Read more →

What is the difference between invoice factoring and invoice discounting?

Invoice factoring and invoice discounting are both types of asset backed finance aimed to help businesses release cash which are tied in invoices.

Read more →

What is the difference between recourse factoring and non recourse factoring?

The industry defines the two forms of factoring by risk. Invoice finance is effectively a line of credit obtained on the value of your outstanding sales ledger. Here’s what happens if your debtors fail to pay the invoices after you have financed them.

Read more →

What is bill discounting and how does it differ from factoring?

Bill discounting, also known as purchase of bills and invoice discounting are all the same type of financial instrument used to provide working capital to small and medium enterprises from invoices raised.

Read more →

Invoice Finance - Frequently Asked Questions

What's the difference between invoice discounting and invoice factoring?

Invoice finance is a type of receivables finance, which includes factoring and discounting.

Factoring is present when a business assigns their invoices to a third party and the factoring company has full visibility of the sales ledger and will collect the debts when due.

  • The customer has knowledge that the invoices have been factored. (This is the typical route a lot of funders offer, however – some can offer Confidential Factoring)
  • Factoring gives businesses up to 90% pre-payment against submitted invoices
  • This enables improved cashflow, and reduces the need to wait for payment
  • The company may receive their funds up to two days after invoices are sent out. Many factoring companies will offer to send money same day (TT Payment, usually carries a charge) or by BACS (Free)
  • A business can choose a ‘selective’ factoring or invoice discounting facility, dependent on the funder.

Typically, with Invoice Discounting, the borrower will have more control over their ledger. Again – like factoring, there is the option to do this on a completely confidential basis.

  • Invoice discounting is an alternative way of drawing money against the invoices of a business
  • The business retains control over the administration of their sales ledger
  • Invoice discounting usually involves a company reconciling with their invoice financier monthly
  • With factoring – each individual invoice is uploaded – with Invoice Discounting, a bulk figure is uploaded and then drawn down against with the monthly reconciliations showing where money is allotted to
  • Under a selective facility a business can opt to factor (i.e. lend) or invoice discount just some of the submitted invoices
  • A selective facility is a good option if a business needs a certain amount of cashflow guaranteed each month or if one or two customers are good payers.

The main difference between factoring and invoice discounting is that with factoring, a funder will have full visibility of your sales ledger and maintain this by chasing debts on your behalf. Invoice discounting on the other hand, allows you to keep your credit control in house but as we already discussed, it would require a monthly reconciliation with the invoice financier. Naturally, management fees for invoice discounting are usually a lot lower, however a company must demonstrate they have the correct procedures in place to support an Invoice Discounting facility.

What is factoring?

Factoring solutions offer the seller of a receivable a wider service than just the advance of funds to shorten its cash conversion cycle as the entity buying the receivable will also usually take on the responsibility of collecting the debt.

Factoring can take several forms. For example, a factor may agree, subject to limits, to buy the whole of a seller’s receivables. This is known as whole turn-over factoring. Conversely, a factor may select which invoices he wishes to buy. It can be with or without recourse to the seller and may or may not be notified to the buyer or obligor.

The vast majority of factoring is domestic and individual invoices are often of a low value. Cross-border factoring is possible using the two-factor system. One factor is in the buyer’s country (known as the ‘Import Factor’) and the other in the seller’s country (known as the ‘Export Factor’). The two Factors establish a contractual or correspondent relationship to service the buyer and the seller respectively under which the Import Factor in effect, guarantees the receipt of funds from the importer and remits payment to the Export Factor. Typically, the two factors use an established framework such as the General Rules for International Factoring (GRIF), provided by FCI. Read more about factoring here.

What is invoice discounting?

Invoice discounting solutions tend to focus on shortening a seller’s cash conversion cycle, as opposed to encompassing debt management and collection aspects. The degree of disclosure to the debtor under this type of facility varies, ranging from full disclosure to no-disclosure, depending on the level of comfort taken by the purchaser of the receivables over the nature and standing of the seller. In most cases, the greater the control the financing entity/purchaser of the receivables manages to attain over the process, the better the discounting conditions offered.

An invoice discounting facility without disclosure to the debtor will grant the seller of the receivables full confidentiality, and therefore avoid reputational hazards. Most invoice discounting is without recourse to the seller so as to ensure de-recognition of the receivables from the seller’s balance sheet (so-called “true sale”) but recourse is normally retained for commercial dispute e.g. where the buyer refuses to pay because the goods or service are defective. Read more about invoice discounting here.

How do interest rates work in invoice finance and how much is advanced?

Rather than waiting 30 – 90 days, an invoice financier can pay for most of the invoice amount up front, and the interest rate is the amount charged for this service. Interest rates are often linked to base rates the bank will pay for borrowing money, such as the LIBOR, as well as a management fee.

At first instance, invoice finance lenders can advance around 90% of the invoice amount value up front, whether that be through invoice discounting or factoring. Once the invoices are paid by the end customer, the borrower will be paid the remaining difference, excluding interest rate and management fees. Even if the company has existing finance arrangements such as an existing bank loan or overdraft, invoice discounting or factoring may still work for a business.

Normally, a lender will analyse the business prior to implementing a factoring or invoice finance facility. They may audit the financial records of the business and list the approved customers, and the decision is down to legal and contractual implications such as security and existing lenders.

What is the cost of an invoice finance facility?

The company should always read the offer letter and look at all (including the following) costs:

  • Discount costs
  • Service or management fees (including the minimum service fee which is normally derived as a % of the service fee)
  • Audit charges
  • Re-factoring charges
  • Transactional costs
  • Notice period for ending service and associated fees
  • Annual service costs
  • Trust account costs
  • Additional costs for services such as credit protection
What is needed for invoice finance?

There are three parties involved directly in invoice finance:

  • the funder who advances money against the invoice or receivable
  • the business (or customer) who sends out the invoice
  • and the debtor who is required to pay for the invoice

A brief explanation: The receivable, associated with the invoice for services or goods acts as an asset and provides the company the legal right to collect money from the debtor. A percentage of funds are then advanced against the value of the invoice.

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Latest News

29Apr

FCI Academy opens up all online courses to the entire factoring market

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FCI Academy announces the opening of the certificate programmes and the specialized online courses to all industry stakeholders…. Read More →

21Apr

FCI reports 6.6% drop in global factoring statistics in 2020

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The first estimates for the factoring industry worldwide in 2020 have been announced today by the FCI’s Peter Mulroy. Factoring… Read More →

17Apr

Can we eliminate paper from negotiable instruments and documents of title?

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By integrating the DLPC structure into trace:original documents, the benefits of a payment undertaking supported by BAFT’s best practices can… Read More →

07Apr

Model Law on Factoring: UNIDROIT’s Approach to Receivables Financing

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Factoring, as an important method to extend credit, is a type of financial transaction where the creditor assigns its receivables… Read More →

16Mar

Using education to make factoring more inclusive

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Teaching businesses to unlock working capital and grow their operations through factoring education programmes (FCI)
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16Mar

What the pandemic means for future access to trade finance

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The resilience of global supply chains lies with…ANY IDEAS? Alexander Malaket explains what COVID-19 means for future access to trade… Read More →

09Mar

Supply Chain Finance: Tarnished Beyond Redemption? …Only if We Collectively Allow It

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The very public implosion of a high-flying boutique finance firm has left ripples in the Supply Chain Finance industry. Should… Read More →

10Feb

MSMEs seeking factoring credit should get ratings, finance panel tells Indian parliament

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India’s financial parliamentary panel has called for the ratings agencies to regulate MSMEs seeking receivables loans and factoring credit.  With… Read More →

02Feb

How to bring commodity finance into the twenty-first century

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A reliance on paper has hindered commodity finance for far too long. It should welcome digitalisation with open arms. … Read More →

26Jan

BCR’s Supply Chain Finance Summit – A roundup of Day 1

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The two-day BCR Publishing Supply Chain Finance Summit got underway this morning, boasting important names from the supply chain finance… Read More →

11Jan

Bill Discounting vs. Invoice Factoring – What’s the difference? [Updated for 2021]

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Both ‘bill discounting’ and ‘invoice factoring’ are types of financial instruments that are used to provide working capital to businesses… Read More →

07Jan

Afreximbank & FCI receive grant to support emerging factoring firms in Africa

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The African Export-Import Bank (Afreximbank) together with its partners the African Development Bank (AfDB) and FCI announce the creation of… Read More →

04Jan

FCI and Afreximbank appoint Mr. Nassourou Aminou as Regional Manager for Africa

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Amsterdam, 4 January 2021 FCI along with Afreximbank announce the appointment of Mr. Nassourou Aminou as the new Regional Manager… Read More →

08Dec

TrailStone Group signs EUR 150m Green Secured Uncommitted Revolving Credit Facility with ING Bank

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Berlin, 8 December 2020 – TrailStone Group today announced the successful signing of a EUR 150m multicurrency secured uncommitted revolving… Read More →

25Nov

Global Trade Virtual – TFG Partners with TXF’s latest festival of debate in international trade

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TFG is proud to be partnering with TXF for their latest event: TXF Global Trade Virtual 2020, which will be… Read More →

24Nov

Is a “Documentary Trade Payment” the future of trade finance for the internet?

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In this article, John Dunlop takes a look at a documentary trade payment (DTP) and whether it can be substituted… Read More →

10Nov

Global Supply Chain Finance Forum issues payables finance guidance to drive further clarity on terms and techniques

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Global Supply Chain Finance Forum issues payables finance guidance to drive further clarity on terms and techniques… Read More →

02Nov

Launched: Updated Periodic Table of DLT Projects in Trade

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Distributed Ledger Technology (DLT), colloquially termed ‘blockchain’ has been touted to disrupt trade and supply chain, as well it’s financing,… Read More →

30Oct

#RemoteButConnected – TFG and TXF Partner for Global Commodities 2020 Virtual [Part 2]

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As part of a wider strategic partnership with TXF, TFG are delighted to announce that we are supporting TXF Global… Read More →

29Oct

FCI: Best Trade Finance Innovator Global 2020

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The CFI.co judges have conferred on FCI the 2020 award for Best Trade Finance Innovator Global 2020. Highlights of the judging panel’s findings include:  FCI… Read More →

15Oct

Podcast: FCI – Views from the Board, Factoring and Receivables

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TFG’s Deepesh Patel caught up with FCI’s Chairman, Mr. Patrick de Villepin, and FCI Vice Chairman, Mrs. Daniela Bonzanini, on… Read More →

08Oct

More action, less talk needed to close the gap between the promise and reality of digital innovation

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Standard Chartered sees co-creation and innovation as a crucial aspect and is committed to continue this momentum of ‘more action,… Read More →

23Sep

SCHUMANN Interview: Robert Meters – Rethinking Credit Risk Management in 2020 and Beyond

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TFG heard from Robert Meters on the significant role of trade credit insurance in the current economic crisis the global… Read More →

03Sep

Trade Finance Guide 2020 – Now Launched!

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ITFA and TFG, today, launched their international trade finance guide, aimed at clarifying and defining standard definitions for trade finance… Read More →

30Aug

CITY WEEK 2020: The future of financial services in the new Covid-19 world

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TFG announced a media partnership with City & Financial Global Ltd for 10th edition of City Week 2020 – its… Read More →

30Jul

Paper Is Not the Problem

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ICC has taken the lead to keep trade moving during the Covid-19 pandemic by publishing the eUCP and eURC eRules… Read More →

21Jul

RFQ and QTO; Science or Art Form?

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The Buyer’s Request for Quotation (RFQ) and the responding Seller’s Quotation (QTO) need not be a kabuki dance event that… Read More →

15Jul

ITFA Association Update, 2020 overview on the trade market

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ITFA has led another industry wide initiative to draw the attention of governments and regulators to the importance of the… Read More →

10Jul

How to Prevent Double Invoice Fraud

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EIPP in combination with blockchain can help banks avoid duplicate Invoice Financing and perform dedupe effectively…. Read More →

30Jun

WOA Survey 2020: COVID-19’s Impact on Factoring and Commercial Finance Firms

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WOA took the initiative to survey members, partners and industry leaders in June 2020 about how the virus has affected… Read More →

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