Invoice finance

Invoice finance is where a business supplier of either goods or services assigns the debt due to it from its customers to a finance company in return for an immediate up front payment of up to about 80% of the value of the debts assigned and the balance, less charges, being payable when the customers pay.

Factoring or invoice discounting are types of invoice finance.

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Why does a business factor its debts?

It is a cash flow exercise.

Upon payment of a fee the supplier can obtain credit control and bad debt protection.

By factoring its debts a business can obtain payment of the vast majority of the debts due to it without having to wait maybe two or three months for payment.

Types of factoring agreements

There are a number of different types of agreements but basically there are two.

 The first is a disclosed factoring agreement where the customers of the business are told about the assignment of the debt.

The second is a confidential undisclosed agreement where the customers of the business are not told about the assignment.

Where there is a disclosed factoring agreement, the customers are told by means of notice of assignment on the invoices and on the monthly statements of account which notify the customers that the debt has been assigned to the finance company to whom payment should be made.

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Security

If the business factoring its debts is a limited company, then the finance company may well seek security in a number of ways:

  1. By obtaining a deed of waiver and priority from any third party (usually a bank) who has registered a charge or debenture at Companies House
  2. By taking a deed of guarantee and indemnity from say a director or shareholder of the company
  3. By taking a charge over some property

If the business factoring its debts is either a sole trader or a partnership, and it enters into a whole turnover factoring or invoice discounting agreement then the finance company may also register the agreement at The Bills of Sale Registry to avoid a possible challenge by a trustee in bankruptcy pursuant to section 344 of the Insolvency Act.

Why instruct Stephensons?

Members of our team have been dealing with factors and factoring related issues for decades. They have not only contributed to textbooks on the subject but also lectured the industry’s trade association and published articles. They have been involved in some of the well known factoring cases.

We are experienced in acting for both the finance companies who factor the debts and the businesses who assign their debts. Call us on 0203 816 9303, alternatively please complete our online enquiry form and a member of the team will contact you directly. 

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