What a provider looks at before offering a facility

Businesses that have applied for a term loan or an overdraft often expect an invoice finance provider to ask the same questions. Some overlap, but the emphasis is different. The provider is funding against invoices, so it is the invoices, and the customers behind them, that carry much of the weight.

The debtor book

Who owes the business money, how much, and how spread out it is. A ledger with many customers paying broadly on time looks different from one where a single customer accounts for most of the balance. Concentration on one debtor is a common concern and is often managed through limits within the facility.

Providers will typically want to see an aged debtor listing. If the business cannot produce one quickly, that is worth fixing before any approach.

The invoices themselves

• Invoices for completed work or delivered goods are generally the most straightforward to fund.
• Invoices that are disputed, subject to retention or conditional on future performance are commonly excluded or discounted.
• Clear payment terms and a clean invoicing process make everything easier.

Sector and contract structure

Some sectors are well understood by invoice finance providers and some are not. Contractual work, stage payments and applications for payment, common in construction and some engineering, are typically harder to fund and may need providers who specialise in them.

The business behind the ledger

Recent accounts, management information, how long the business has traded, who runs it. A provider is entering an ongoing relationship, not making a one-off decision, and will want confidence that the ledger it is funding will still be well run in a year.

Being ready

Much of the preparation is simply having the information organised: an aged debtor listing, recent accounts, sample invoices and a clear account of who the main customers are and how they pay. Part of what we do is help a business assemble this before it speaks to anyone.

Every provider applies its own criteria. This article describes considerations that are common across the market, not the policy of any particular provider.