Many business owners feel nervous about telling customers how their finance is arranged, and confidential invoice discounting is often the first thing they ask about. You don’t want to give the wrong impression, so that instinct is a natural one. In this article, we look at the stigma around invoice finance, what confidential invoice discounting can and can’t keep private, and how to approach the conversation if you decide to tell people.
Will my customers find out automatically that I’m using invoice finance?
Not necessarily. It depends entirely on which type of facility you use.
If you’re wondering what invoice finance is, it releases the cash tied up in your unpaid invoices. Instead of waiting 30, 60 or 90 days for a customer to pay, you receive most of the invoice value from a funder within a day or two. The remainder is paid when your customer settles the invoice, minus the funder’s charges.
Advance rates usually range from 80% to 90% of the invoice value. Rates of up to around 95% are typically reserved for sectors with strong, predictable debtor books, such as recruitment. Costs generally come in two parts: a service fee, which is charged against your turnover, and a discount margin, which is charged on the funds you draw down. Exact terms vary between funders and depend on your business.
Why does invoice finance still have a reputation?
The perception is that invoice finance is a sign of trouble: something a business turns to when the bank has said no and the cash has run out.
That view comes from how the market looked years ago. It doesn’t reflect how the product is used today. Businesses in construction, recruitment, manufacturing, logistics and wholesale use invoice finance deliberately, as a working capital tool. They use it to grow, to take on larger contracts, to manage seasonal cash flow, or to pay suppliers early and secure discounts. Thousands of UK businesses use it, and the sums advanced each year run into the billions.
Fast growth can create a cash gap just as readily as financial trouble can. Funding that gap is a sign of planning, not of difficulty.
Is invoice finance kept private?
Partly. Confidentiality is something you choose rather than something built into the product, and there are two separate decisions to make.
The first is who collects the money. With invoice factoring, the funder runs your sales ledger and collects payment from your customers. With invoice discounting, you keep control of credit control and collect payments as usual.
The second is whether your customer finds out. With a disclosed facility, your customer receives a notice of assignment and pays into an account in the funder’s name. With a confidential facility, no notice is given and payments go into a trust account that looks like an ordinary bank account in your company’s name.
Confidential invoice discounting is the option most business owners have in mind when they ask this question. It is also the option funders are most selective about, because they rely on you to handle collections. Expect them to look for a minimum turnover, strong financial controls and a clean debtor book before they offer it.
Where confidential invoice discounting has limits
Confidential invoice discounting is discreet, but it is not invisible, and any funder worth using will tell you the same.
Charges are registered at Companies House. Your funder will register security against the company, and this appears on the public register within 21 days. It won’t say which product you use or how much you have drawn, but it will name the funder. A customer, supplier or competitor who knows the invoice finance market can often make a reasonable guess from the name alone.
Confidentiality can also be removed. The agreement gives the funder the right to send a notice of assignment and collect directly if you break the rules or the agreement ends. Confidentiality is a condition of the agreement, not a guarantee.
Do I need to tell anyone inside the company?
Yes, your directors. Taking on a facility and giving security is a decision for the board. The paperwork will need director signatures and usually personal warranties.
Shareholders are a different matter. There is no legal requirement to tell them, but your articles of association or a shareholders’ agreement may require approval above a certain level, and the facility will show in your annual accounts.
Customers and suppliers do not need to be told about a confidential facility at all. That is a business decision.
If you do choose to tell your customers
Some businesses tell their customers on purpose, and there is a good reason for it. Done properly, it shows a company with its funding in order.
How you explain it matters. Presented as a cash flow rescue, it causes concern. Presented as what it is, a growth tool that lets you take on bigger orders, pay suppliers faster and offer longer payment terms without strain, it comes across as normal business practice. Tell key accounts directly and early, rather than letting them find out from a payment instruction they weren’t expecting. Keep the explanation to a sentence or two and avoid over-explaining. Confidence in how you say it does most of the work.
Not sure whether confidential invoice discounting or a disclosed facility suits your business? Our team compares invoice finance options from a range of funders and can talk you through what each would mean for your customers in practice. Book a free consultation to find out what’s available for your business.
