Comparing Invoice Finance vs. Invoice Auction Costs

Posted: 22nd April 2016

Invoice Finance is a long established form of finance in the UK and supports over 50,000 businesses and advances over £20bn.

Invoice Finance, as the name suggests, raises funds against the value of a company’s invoices. A business can choose either Factoring or Invoice Discounting. Normally a business will commit to a term contract e.g 12 months, and will raise funds against all of its sales invoices.

Invoice Auctions are peer-to-peer lenders, which means that they are effectively brokers for their investors’ money, advancing funds against individual sales invoices. Invoice auction sites are relatively new but have had a big impact very quickly. They claim to be fast and flexible.

But there are costs to this speed and flexibility...

Cost Comparison Example:

Invoice Finance:
Business Sales Turnover: £1m
Funding Required: £100,000
Term: 12 months
Service + Interest
Cost: £10,000

Invoice Auction:
Business Sales Turnover: £1m
Funding Required: £100,000
Term: 60 days
Cost: £2,600

The cost comparison above clearly shows that if the business only requires short term funds, then Invoice Auction is a more cost-effective solution. But what if funding is required again? If the Invoice Auction platform is used only four times a year it becomes more expensive than the Invoice Finance facility. If it is used every month is would cost over three times as much.

So, the message is pretty clear, if a business only need short term funds as a ‘one-off’ then selling an invoice on an invoice auction platform is the answer. But if funding is a longer term requirement then Invoice Finance will provide the best solution.

However, there is another finance facility that business owners should take into consideration:-

ICON - In Case Of Need

This funding facility provides all the comfort of a long term invoice finance facility, but with the flexibility of a selective facility and a cost structure to beat both.

An Invoice Finance facility is agreed and set up In Case Of Need and funds are not drawn down by the business. Whilst the facility is undrawn a nominal monthly fee is charged. If funds are required then the Invoice Finance facility kicks in. Funds advanced can be repaid at any time and the facility reverts to the small monthly charge.

ICON costs for comparison:

Business Sales Turnover: £1m
Funding Required: £100,000
Term: 12 months
Cost when funds not used: £250 per month
Cost when funds used: £1,100 per month

If you are interested in our ICON facility or would like to discuss any of our services, please call us on 020 3555 4545.