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Cash flow is the lifeblood of any business. Even with strong sales, delayed customer payments can create significant strain on day-to-day operations. For businesses that invoice clients, one of the most effective ways to manage this challenge is through invoice finance.
Size of The Facility — This is to be agreed, but usually end up being 3 months of business turnovers as an average.
Term Of Contract — Most Banks will need a 12 months minimum. Please note this is up for negotiations and be wary of any Bank or lender trying to tie you in for longer than 12 months.
Advance rate — Ranges from 75%-95% of approved invoices. Essentially this is the percentage of the amount you can draw for all approved invoices.
Pricing — From 2% - 4% over Base Per Annum which ranges with different Banks/Lenders.
Fees Applicable
Arrangement fees — Anything from £0 - 1% of the borrowing facility This varies massively between providers.
Monthly Service fees — 0.2% - 0.5% of turnover with a minimum monthly fixed cost if turnover not hit.
Renewal Fees — Again this will range massively between Banks/Lenders We usually expect this to be no more than 0.5% of the facility.
Customer Concentration — This is important to be aware of. Most Banks will have a customer concentration limit on their facility. This is usually around 20%, which ultimately means the bank will cap your lending facility if more than one client makes up more than 20% of money owed to your business. This can make a huge impact on how much of your facility you can access.
Bad Debt Protection — This does exactly what it says on the tin. Ultimately it protects the business against your debtors not paying your outstanding invoices. This can be delivered by a third party or on a lot of occasions the bank providing the invoice facility will also offer bad debt protection. Bad debt protection can range massively from 0.1% - 0.9% of the turnover. It is underwritten on risk and performance of the ledger.
Funding Days — Usually Banks will fund invoices for up to 90 days.
They are both ways of turning unpaid invoices into cash. The difference is about control, visibility and who is actually dealing with your customers.
Invoice factoring means you sell your invoices to a finance company and they take over the credit control.
You raise an invoice, send a copy to the factor, and they advance you typically 80 to 90 percent within 24 to 48 hours. The factor then chases your customer, collects the money and pays you the balance less fees.
Your customer knows. Payments go to the factor. They will get calls and statements from a third party.
This is why factoring is often used by:
smaller businesses
companies without an in-house credit control team
businesses growing faster than their admin can cope
companies with weaker balance sheets
You are outsourcing your receivables department in exchange for liquidity and admin relief.
Invoice discounting means you keep control.
You still raise invoices, but you don’t tell the customer. You quietly draw an advance against your debtor book. You remain responsible for chasing and collecting the money. When your customer pays you, the lender settles up behind the scenes.
The customer never knows there is a lender involved.
This is why discounting is used by:
established businesses
firms with proper finance teams
companies that care about brand perception
directors who want control over credit and relationships
It is cleaner, cheaper and more discreet. But the lender expects you to know what you are doing.
| Area | Factoring | Discounting |
|---|---|---|
| Customer visibility | They know | They do not |
| Who chases debt | Lender | You |
| Admin burden | Low | Medium |
| Cost | Higher | Lower |
| Credit requirements | More flexible | Stricter |
| Reputation control | Weaker | Stronger |
The mistake people make is choosing factoring when they do not actually need their customers interfered with. Or choosing discounting when they have no credit control discipline and end up breaching covenants inside six months.
At P10 we find ourselves typically advising on Invoice Discounting as opposed to Invoice Factoring.
At P10 Financial, we help businesses of all sizes improve liquidity through smart, tailored funding strategies. If invoice finance is right for you, we’ll match you with a competitive provider and structure a facility that:
Improves working capital without affecting business ownership
Aligns with your sales cycle and credit terms
Offers transparent, competitive rates with minimal friction
Whether you’re a growing company in need of flexible funding or simply looking to unlock cash from your existing invoices, our team will guide you through every step, from selecting a provider to integrating the facility into your operations.
If late payments or extended credit terms are holding your business back, invoice finance could be the key to unlocking growth.
Get in touch with P10 Financial today to explore how invoice financing can transform your cash flow, and put your sales ledger to work for your business.
