Confidential invoice finance

Quick facts

Invoice finance is a way of borrowing money using your unpaid invoices. If you’ve issued invoices to your customers and these haven’t yet been paid, invoice finance unlocks this money early. It’s like a business loan, but instead of using a physical asset like a building as security, invoice finance uses your accounts receivable.

Invoice finance is a type of asset finance that enables you to borrow money based on what your customers owe to your business (accounts receivable).

Unpaid invoices of course represent money that will be paid to you. You might offer your customers payment terms of 30, 60, 90 or even 120 days. Assuming your customers pay.

Confidential invoice finance is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. 
Confidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers. We’ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance. 

As you’d expect from the name, confidential invoice finance refers to all invoice discounting and invoice factoring facilities that remain confidential – your customers are not made aware that you’re using invoice finance.

Confidential invoice finance is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. 
Confidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers. We’ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance. 

If confidentiality is important to you, you might consider the three main types of confidential invoice financing:

(Confidential) invoice discounting Invoice discounting is arguably the simplest form of invoice finance – it’s a way of borrowing money using your unpaid invoices. Invoice discounting is aimed at larger, established companies with a relatively high turnover, and is designed to finance your entire sales ledger (i.e. all of your invoices). It’s usually confidential, so your customers and suppliers won’t be aware of the arrangement.
 
Confidential invoice factoring Confidential factoring is a type of invoice finance. It offers the cash advance and credit control aspects of a normal factoring facility – but with the confidentiality of invoice discounting.
 
Confidential CHOCs (‘Customer Handles Own Collections’) CHOCs (‘Customer Handles Own Collections’) is a hybrid of invoice factoring and invoice discounting. It’s a disclosed (non-confidential) facility, like factoring, but with a CHOCs facility you continue to handle your own credit control, like invoice discounting.

Smaller businesses with a minimum turnover (e.g. from £30,000) who want to keep their factoring arrangement confidential – some providers will work with new businesses.

Invoice discounting 
Invoice discounting is the simplest type of invoice finance. It involves a lender advancing you money against unpaid invoices and charging a fee based on the value. This form of finance is suitable for bigger companies with a relatively high turnover as it allows them to secure funding against their entire sales ledger. 
Invoice discounting is confidential, so your customers don’t know you’re using their invoice as collateral. Your company remains in charge of its own credit collection. It’s also considered riskier so your lender may require evidence that your customers pay promptly and you have in-house capacity to chase outstanding payments. 

Invoice factoring 
Invoice factoring also lets bigger companies borrow money against their sales ledger, but it’s different to invoice discounting because the process is disclosed. The lender takes control of your credit collection and deals directly with your customers. They pay the lender, who then forwards you the balance less their fee. 
Invoice finance can benefit smaller businesses as it means they don’t have to chase their outstanding payments, although they have to prove to the lender they generate a reliable turnover. However, it may not be cost-effective for SMEs with fluctuating cash flows.  

Selective invoice financing 
Selective invoice financing lets your company borrow against specific invoices, rather than your entire sales ledger. This form of invoice finance is suitable if your company generates a significant proportion of its income from large, steady customers, and you only want to finance those invoices. Selective invoice financing can also help SMEs raise working capital if they have fluctuating cash flows, as borrowing against their sales ledger may not be cost-effective. 
Selective invoice financing comes in two forms: selective invoice discounting and spot factoring. 

Selective invoice discounting 
Selective invoice discounting works in the same way as invoice discounting, where a lender advances you money against outstanding invoices. The main difference is you choose the invoices you’d like to finance rather than your company’s whole sales ledger. As such, it’s useful for companies seeking to borrow against invoices issued to a few big customers instead of a lot of smaller customers.  
Selective invoice discounting is also similar to regular invoice discounting because it’s confidential, so it could be the right option if your company would prefer to hide from your customers that you’re securing finance against their invoices. 

Spot factoring
Spot factoring allows you to borrow money against specific unpaid invoices rather than your sales ledger, so it’s also suitable for companies with at least a few large customers. The main difference with selective invoice discounting is that spot factoring is disclosed. You hand over control of the invoices you choose to finance to the lender who collects payment from your customer and forwards your company the balance less its fee. Spot factoring may suit SMEs that don’t have the resources to chase outstanding payments and are happy to let a lender take the responsibility on their behalf. 

Confidential invoice finance 
Confidential invoice finance is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. 
Confidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers. We’ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance. 
 
CHOCs (Customer Handles Own Collections)
CHOCs, short for Customer Handles Own Collections, is a cross between invoice discounting and invoice factoring. As with invoice discounting, you deal directly with your own customers. However, like invoice factoring, your customers pay the lender instead of your company, so they know you’re using their invoices to secure working capital. 

CHOCs are suitable if you’d like to maintain a direct relationship with your client or for early-stage companies that don’t qualify for invoice discounting, as long as they can prove they have the in-house capacity to chase outstanding payments. They can also offer a more cost-effective option for companies with lots of small customers.

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