Invoice finance: what happens after the advance?

Distinguish the transaction

Factoring typically involves a sale of receivables, while other receivables facilities lend against them. Product terminology and legal structures vary. British Business Bank guidance identifies invoice finance as a route for businesses with qualifying invoices; examine the actual agreement to understand ownership, customer contact and risk.

Source: British Business Bank: finance options ↗

• Who owns the receivable after funding?
• Who tells the customer where to pay?
• Which events require you to repay an advance or replace an invoice?

Follow the cash through a complete invoice

Illustrative only: an invoice is 20,000, the advance is 80% and the total fee is 600. The business receives 16,000 initially. If the customer pays in full and no other deductions apply, the remaining settlement is 3,400. Total receipts are 19,400. This example is not a market quote; different reserve, fee and collection rules change the result.

Test a late payment and a dispute

Ask the provider to calculate the cost if the invoice is paid at 30, 60 and 90 days. Separate a customer’s inability to pay from a dispute over delivery or quality; protection described as non-recourse may have exclusions. Check concentration limits, minimum charges, termination notice and whether all invoices must be assigned.

Check existing security before switching

If a bank already has security over receivables, a new arrangement may require consent or an agreed priority. Confirm this before committing to an implementation date. Compare the administrative work too: invoice verification, credit notes, debtor reports and reconciliations all affect how the facility operates.

• Provide a receivables ageing report and customer concentrations.
• Disclose disputes, credits and existing assignments.
• Ask for the full exit process and reserve-release timing.
• Look for factors in the directory’s separate category; factoring is not labelled as a conventional loan.