How Invoice Finance Works Day to Day

The actual operation of an agreed invoice finance facility is relatively straight forward, however there are subtle differences between factoring and invoice discounting.

Simple guide to the process of invoice finance

There are six simple stages to the process of invoice finance, here they are:-

1. You supply your goods or services to a customer and issue an invoice for payment.
   • With factored invoices, they are issued as payable to the invoice discounter.
2. You send a copy of that invoice to the invoice finance services company.
3. The invoice discounter then pays the agreed percentage advance against the invoice total, typically within 24 to 48 hours.
4. When the end customer settles the invoice, payment will either be made direct to the factoring company or in the case of invoice discounting, the payment may need to be made into a business account held with the lender.
5. The invoice lender then pays you the balance of the debt minus the agreed service charges.
6. Monthly sales ledger statements are issued to the borrowing business by the invoice services provider.

Where an invoice is not paid by the customer then what happens next will depend on the agreement with the lender. Where a non-recourse option (bad debt insurance) has been taken then the responsibility will be with the lender. Otherwise repayment remains the responsibility of the borrower.

Termination of an invoice finance deal is usually subject to a minimum term with a typical 3 month notice period required.