Single Invoice Finance & Spot Factoring Guide
Want to know more about a flexible Invoice Finance solution that leaves you in control?
Single Invoice Finance is what’s on the minds of UK business owners like yourself. On principle, it’s the exact same as regular Invoice Factoring and Invoice Discounting. However, Single Invoice Finance does not require you to submit your entire debtor ledger, instead giving you the freedom to select which specific invoice you want to advance.
I know what you’re thinking.
“This sounds too good to be true. There has to be a catch”.
The good news is you heard me right. Single Invoice Finance gives you control over choosing what invoice you want to raise funds against. There are no long contracts or hidden fees.
But, as great as Single Invoice Finance sounds, it is not suitable for all businesses. In fact, if your business is not well-matched for Single Invoice Finance, it may end up costing you even more than regular Invoice Finance!
This article is your best guide to everything you need to know about single invoice finance, how it works, costs, strengths and weaknesses, and whether you should use it.
So make sure you’re comfortable, and let’s get started.
Single Invoice Finance is an umbrella term for the short term finance solution that covers Spot Invoice Finance, Selective Invoice Finance, and Single Debtor Invoice Finance. They all provide the exact same services as regular Invoice Finance, specifically Invoice Factoring and Discounting, but they aren’t whole-turnover Invoice Finance solutions.
What this means is you have the ability to choose what invoices in your debtor ledger that you want to sell for a working capital advance. Depending on your Single Invoice Finance solution and provider, you receive funds against one or multiple invoices from either a single debtor or multiple debtors.
Here’s a quick summary of the terms you’ll come across in Single Invoice Finance:
- Spot Invoice Finance is when you receive funds against one individual invoice.
- Selective Invoice Finance is when you receive funds against multiple invoices that you personally select.
- Single Debtor Invoice Finance is when you receive funds against the invoices to one debtor.
For each of those solutions, there are two types: Invoice Factoring and Invoice Discounting.
You’re dead right, Single Invoice Factoring and Discounting works the same way as regular Invoice Factoring and Discounting, except you select which invoice(s) to factor or discount.
The point is this: Single Invoice Finance gives you more control over your cash flow because you choose what invoices you receive funding against, and thus how much working capital you can access. The flexibility of Single Invoice Finance also means that you only pay fees on a pay-as-you-go basis, while receiving a quick turnaround on the funds advanced.
But at the same time, Single Invoice Finance is not for everyone. Providers are put under more risk because they can’t protect themselves from debtor insolvency since they are only relying on a small number of invoices from a few debtors. Therefore, eligibility requirements tend to be relatively higher for Single Invoice Finance, and providers put emphasis on the creditworthiness of your customers.
Before we start, here’s a brief outline of this guide:
- Single Invoice Finance allows you to raise funds against individual invoices on a one-time basis.
- Single Invoice Finance operates on a pay-as-you-go scheme with no long contracts.
- There are straightforward costs that generally consist of a one-off service fee and admin charge.
- Single Invoice Finance is suitable if your business only has occasional working capital needs or needs to fund a large project.
- The eligibility requirements for Single Invoice Finance tend to be higher, due to the increased risk for the provider.
Single Invoice Finance offers the ability to either factor or discount individual invoices to access a working capital advance. Both solutions allow you to choose which invoices you want to advance funds against, as opposed to using your entire debtor ledger.
The main difference between Single Invoice Factoring and Single Invoice Discounting is the confidentiality of your relationship with the provider. This is exactly the same as regular Invoice Factoring and Discounting, except you aren’t tied down to a long contract and the fee structure is much more straightforward.
Single Invoice Factoring
Single Invoice Factoring allows you to choose which debtor invoices you want to sell and factor. After raising the invoice and submitting a copy to your provider, they will advance you up to 100% of your invoice value.
Yes, that’s right. Single Invoice Finance can unlock up to 100% of your invoice, if your business and customers are determined to be low-risk.
But remember, your relationship with the provider is disclosed to your customers and your provider collects payments directly from them. So, consider if you are okay with this or if you would rather maintain your customer relationships and keep your Invoice Finance solution undisclosed.
Single Invoice Discounting
Single Invoice Discounting works the same way, as you are able to receive up to 100% of your invoice value on an invoice-by-invoice basis. You choose which invoices you want to be discounted and receive funding against, and you don’t have to process them through the Invoice Finance facility since you are handling your own credit control and collections.
Furthermore, Single Invoice Discounting allows you to personally manage your debtor accounts and build better customer relationships, as your provider won’t interact with them in any capacity.
In general, Single Invoice Finance solutions offer a straightforward pay-as-you-go scheme where you pay simple fees for the invoices you choose to raise funds against. This offers a greater degree of flexibility and is a cheaper option if your business only needs has occasional funding.
There are two fees in Single Invoice Finance:
- A one-off service fee
- A small administrative charge
The service fee is typically higher than that of regular Invoice Finance solutions because there is more risk associated with raising funds against one or few invoices. Your provider can’t protect themselves from debtor insolvency by relying on a wide customer base with a lot of invoices to finance. As a result, they charge a higher service fee to make up for some of this risk.
The admin charge is a simple, small charge to cover the cost of setting up your Single Invoice Finance facility. Since your facility is considerably smaller than regular Invoice Finance facilities, your admin charge will be lower.
What’s more, you aren’t tied down to any long contracts, which means that you don’t face any contractual fees such as minimum usage, annual fees, or extension charges.
When used correctly, Single Invoice Finance is an incredibly useful funding solution. You can access up to 100% invoice value and face simple, straightforward fees with no obligation to enter into any contract.
However, it is often difficult for small businesses to qualify for Single Invoice Finance because some providers have high eligibility criteria. They take on more risk by financing a smaller number of invoices, and thus are only willing to provide Single Invoice Finance to companies that are more stable and have creditworthy customers.
Here’s a side-by-side comparison of the pros and cons associated with Single Invoice Finance:
|Single Invoice Finance Pros||Single Invoice FInance Cons|
So, you understand how Single Invoice Finance works, what costs are involved, as well as its pros and cons.
But what does it all add up to?
Well, now that you’re almost an expert on Single Invoice Finance, it’s time to work out if your business is suitable for this solution.
If any of these sound familiar, then Single Invoice Finance may be the right choice for you:
- You have occasional or seasonal needs for additional working capital
- You have large projects with large invoices
- You have a single or few large debtors
Single Invoice Finance is ideal if your business has medium-to-large invoices and occasional working capital needs. If you think that you will require ongoing funding, then consider regular Invoice Finance. This is down to the fact that the more often you use Single Invoice Finance, the less cost-effective it becomes. Essentially, you could end up paying more per invoice as opposed to using regular Invoice Finance.
Therefore, think carefully about your future working capital needs and make sure they are in line with your business plans. If you intend to expand or grow your business, Single Invoice Finance may not be enough to fund these activities.
In particular, if you are a startup or SME it may be more beneficial for you to use regular invoice Finance because you are more likely to experience cash flow problems and require ongoing working capital, especially if you are still growing.
But that’s not all.
Arguably the most important determinant of your suitability for Single Invoice Finance is the creditworthiness of your customers. Since your provider cannot use your whole debtor ledger to spread the risk of advancing you funds against your invoice, they have to rely on your customer creditworthiness. You should not enter into any Single Invoice Finance agreements if you’re currently disputing with a debtor on their invoice. Providers expect you to have creditworthy customers with a track record of making payments on-time and in full.
For instance, a startup trading with other startups is not as likely to receive Single Invoice Finance, compared to a business that deals with larger, successful corporations that can guarantee on-time and full payments.
By now you’ll have realised that you have no more burning questions about Single Invoice Finance. You know that it’s a flexible funding solution that allows you to advance funds against particular invoices at a time, as opposed to your whole debtor ledger.
You also know whether or not Single Invoice Finance is suitable for your business and funding needs. Maybe right now it’s not, but in the future your situation could change and you’ll be more than prepared to figure out if Single Invoice Finance is the right solution then.