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Selective Invoice Financing

Selective invoice finance is a cash flow funding product that allows you to release the cash tied up in your unpaid invoices.

The product allows you (and, on occasion, the lender) to pick and choose which invoices and debtors within your sales ledger to finance against.

Transparency

Each individual invoice has its own PnL, the fees you are charged and the movements of cash versus each invoice is much easier to track and much more transparent. It helps that this is a relatively modern product, only really gaining prevalence since the early 2010s.

BENEFITS

Fintech

The lenders that specialise in SIF tend to have the slickest and most user friendly systems, making the experience a lot smoother and, frankly, enjoyable, than some of the more antiquated systems used at the larger providers.

BENEFITS

Flexibility

The selective invoice finance lenders most importantly allow you to pick and choose which invoices you want to fund against, but that is not it – usually with this type of facility, you have no contract tie in, no early repayment charges and they allow you to have flexible drawdowns depending on your cashflow, your seasonality or your order levels.

BENEFITS

Increased cash flow

By getting paid up to 90% of your outstanding invoices up front, your cash position is made much healthier

BENEFITS

Selective Invoice Financing FAQS

Am I suitable for selective invoice finance?

Any B2B company that provides goods or services to their customers on payment terms could be suitable for Selective Invoice Finance. However, the quality od your customers are of the utmost importance in this facility. So, whatever the spread of concentration, the customers you fund against will very likely need to be blue-chip, or at least, have great credit scores. As an example, one of our clients’ is a business that sold soap bars to hundreds of small shops and had no more than 1% concentration on their sales ledger – they wanted to pick and choose the invoices they funded, but despite a long-term track record of success, they were not suitable for Selective Invoice Finance. Instead, we were able to get them a Factoring offer from Bibby. On the contrary, we closed a selective invoice finance facility from GapCap for a less financially stable business on the basis that they had sales to Jaguar Land Rover and Renault, which were blue chip customers that they were able to choose to finance against. If you are looking at a selective invoice finance facility, you can be any age of business, from start up to established business. The quality of your debtors and your sales process is paramount. High quality debtors is a must and your sales cycle needs to look something like - do work>raise invoice>get paid – in that order. Your own business does not necessarily need to have a long track record, nor does it need to be trading profitably, but both of these will give you a pricing advantage. Some lenders will also credit insure your debts, so the insurance limits on your debtors are going to be important. In terms of sectors, it is more likely that Selective providers will take a view on your perhaps not-traditionally-factorable industry because of the quality of your customer base. It remains rare that Selective providers lend heavily to the construction industry, but we have seen it done many times, just at a lower advance rate and higher price point. Again, your debtors and sales process define both appetite and pricing rather than arbitrary sector-based decisions.

Who are the best lenders of selective invoice financing?

There is a smaller pool of Selective Invoice Finance providers out there; it is very rare to see it done at a high street bank unless it is a top-up on a broader range of facilities. Of the more traditional lenders, Bibby will look at writing facilities if required and some of the others, such as Advantedge as well. However, given that it is a slightly more complex set of calculations and the risk management is very transactional, the fintech stars come into their own with this product, with Market Finance, GapCap, Satago and Inksmoor leading the market.

How Much Does It Cost?

There is no doubt that you pay a premium for the flexibility that comes with a selective facility versus a full ledger facility. On the whole this can be mitigated for only paying for what you want to borrow, rather than paying for your whole sales ledger, but pound for pound, you will pay up to 50% more for a selective facility than a full ledger invoice discounting facility.
In most cases, you are likely to pay a setup fee of around 1% of the facility size and then, as and when you draw, you will pay an interest rate – expect to pay no less than 8% p/a on a daily rate, and the majority of facilities tend to have headline rates in the early teens%.
The headline rates are a bit misleading though, you definitely save on flexibility and apart from the daily rate, and unlike other facilities you are unlikely to incur too many ‘other fees’. Although, expect standard trust account and payment charges.

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