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Steven Renwick

21 Mar 2016

What is Single Invoice Finance?

Imagine you are the Managing Director of Acme Widgets Ltd - producer of the UK's finest custom widgets. Your biggest customer is the giant supermarket chain, Terscol plc. They are a great customer, ordering £10,000 of widgets every few months, but they always insist on 60 day payment terms which puts a squeeze on your cashflow.

Photo credit: www.lendingmemo.com

You send your £10,000 invoice to Terscol and then wait for payment. The invoice is due to be paid at the start of the next month, but according to your cashflow forecast it will be tight to meet payroll this month. That is where single invoice finance can help.

A Single Invoice Finance provider, such as Satago Finance, would advance Acme Widgets a proportion of the invoice value immediately - in our case we advance up to 85% of the invoice value. So the finance company would immediately transfer £8,500 to Acme Widget's bank account.

In our example, Acme Widgets can then use that money to meet payroll or any other expenses that may be due. If you are a fast-growing company you might be putting that money straight in to marketing spend to fuel even faster growth.

Terscol is then required by Acme Widgets to pay this invoice into a bank account controlled by the finance company (called "held in trust"). This is a separate bank account - used only for Acme Widgets. When Terscol makes its payment, the remaining £1,500 is transferred to Acme Widgets minus the financing fee.

If Acme Widgets had asked the finance company to advance payment when the invoice was 45 days old, and then Terscol paid it on day 65 (i.e., 5 days late!) then Acme Widgets would have to pay a fee for 20 days. If Acme Widgets had financed the invoice when it was only 5 days old, then they would have paid for 60 days of finance.

That fee is usually 2-4% of the invoice value financed per 30 days. So for the £8,500 that was advanced for 20 days, this might cost £116.  The fee is dependent on a number of factors such as your credit risk and that of Terscol and when we buy the invoice.   You can get an idea of the cost to finance different invoices using our Invoice Finance Calculator at the bottom of this page.

How is Single Invoice Finance different from Debt Factoring?

You might have heard of "Debt Factoring" or "Invoice Discounting" offered by your high-street banks. Technically, Single Invoice Finance is a form of Debt Factoring. The big difference is that the facilities offered by the big banks require you to finance all your invoices (i.e., your entire sales ledger). They also come with fees just for having the facility available - even if you don't need it (usually based on a percentage of your turnover).

The big advantage of Single Invoice Finance over Debt Factoring and Invoice Discounting is that there are no fees to have Single Invoice Finance facilities and because you only finance the invoices you want to finance - rather than every invoice you issue - you keep more of the value of your invoices to run your business.

Satago offers a Single Invoice Finance facility which users can instantly access on our platform.  You can see which invoice you can finance from your Eligible Invoices page. If you're not already a Satago user you can sign-up and check your eligibility within a few minutes.