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What Is Selective Invoice Financing?
Selective invoice finance (also known as selective invoice discounting) is a financial solution for businesses facing cash flow problems. It allows a business to take a loan against its unpaid invoices.
The business selects one or multiple invoices to borrow money against from a third party (usually a bank or an invoice financing company). The financial institution pays a large percentage of the money (typically 75–90%) upfront. The rest is received by the business when the invoices are paid by the customers. The liability to collect payments from customers lies with the business.
Use selective invoice financing to unlock instant cash flow by selectively borrowing against invoices. Pick high-risk invoices for quick funds and safeguard against delayed payments.
How Does Selective Invoice Financing Work?
Selective invoice financing works in 5 simple steps:
Invoice selection: The business selects individual invoices from its accounts receivable that it wants to finance.
Application: The business submits the selected invoices to the financing company for evaluation.
Funding: Upon approval, the financing company pays a percentage (usually around 80-85%) of the total invoice value to the business in advance.
Repayment: When the customer pays the invoice, the business repays the lender the advance amount, minus a fee for the financing service.
Funds Usage: The business uses these funds immediately for operational needs or growth, rather than waiting for the customer’s payment.
Other types of Invoice Finance:
Spot factoring enables a business to sell individual invoices selectively. This type of factoring allows businesses to choose which invoices to factor based on their cash flow needs. It is also known as single invoice factoring or selective invoice factoring.
Debt factoring, also known as receivables factoring or invoice factoring, involves a business selling its accounts receivable (unpaid invoices) to a third party. The factoring company buys these invoices at a discounted rate, providing immediate cash to the business.
In recourse factoring, the business that sells its invoices to the factoring company remains liable if the customer fails to pay the invoice. If the customer defaults, the business must buy back the invoice or replace it with another. The risk of non-payment remains with the business.
With non-recourse factoring, the factor assumes the risk of non-payment by the customer. If the customer fails to pay due to insolvency or credit issues, the factor absorbs the loss, and the business is not responsible for repayment.
Account receivables factoring is used interchangeably with invoice factoring. It involves the business selling its unpaid invoices (account receivables) to a third party at a discounted rate to receive early payments. Upon receiving the invoices, the factoring company releases the bulk of payments, usually up to 90% of the collective invoice value). The rest is paid (after fee deduction) when the payment is collected in full from the end customers.
Sectors That Selective Invoice Finance Covers
Retail
Mechanics
Restaurants
Bars & Clubs
Leisure Clubs
Plus Many More
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What Can You Do With Selective Invoice Financing?
Invest in stock, HR, & equipment
Access capital for essential business needs.
Focus on High-Value Operations
Free up time by outsourcing collections.
Improve Cash Flow
Convert unpaid invoices into immediate funds.
Fuel Growth
Use funds to expand, and invest in stock, HR, or equipment.
How Selective Invoice Discounting Is Different From Normal Invoice Financing?
The difference between selective invoice discounting (aka selecting invoice financing) and invoice financing is as follows:
| Selective Invoice Discounting | Simple Invoice Financing | |
|---|---|---|
|
Scope of Invoices
|
Choose specific invoices to finance
|
Finances all invoices |
|
Advance Rate
|
Higher (around 80-85%)
|
Lower (around 70-90%)
|
|
Fees/Charges
|
Applied to selected invoices
|
Applied to entire ledger
|
|
Flexibility & Control
|
High |
Limited |
Selective Invoice Financing vs Selective Invoice Factoring
In selective invoice financing, a business borrows money against its unpaid invoices from a third party, without selling the invoices. The responsibility to collect payments for the invoices remains with the business.
In selective invoice factoring, a business sells its invoices to a third party for immediate cash flow. The factoring company takes responsibility for collecting and managing payments from customers in this case.
Selective Invoice Finance FAQs
Selective Invoice finance works like a short-term business loan. The business takes a loan against its selective assets (invoices/accounts receivables) which is usually up to 90% of the total invoice value. It then collects the payments from invoices and pays back the selective invoice finance provider the borrowed sum plus an additional fee.
When it comes to selecting invoice finance, ComparedBusiness is here to help you save time and money. You can easily submit your business requirements through ComparedBusiness in under 2 minutes.
You will get quotes from top Selective Invoice Finance companies delivered to your email. You can then compare and choose the most suitable option per your business needs.