How the facility works
With invoice finance, a lender advances you a share of your sales invoices, and you get the rest, less fees, when the customer pays. Before posting anything, get clear on the details. Which invoices are covered? How is the advance worked out? Who chases the customer, you or the lender? How are the reserve and fees taken? The accounting depends on the agreement, so settle it with your accountant first.
The advance isn’t a second sale
The sale happened when you raised the invoice. The advance is usually treated as money borrowed against that invoice, so it goes to a facility account, not to sales. When the customer pays, that clears the invoice and reduces what you owe the lender. Fees and interest are costs. Get this wrong and sales can be counted twice, or the amount owed to the lender grows without anyone noticing.
Match it every month
Match the invoices sent to the lender, the advances, customer payments, lender deductions, fees and the closing balance against the lender’s statement. If things are posted inconsistently, a sales invoice can show as paid while the lender still says money is owed, or the other way round. Checking monthly catches that while it’s still a small job, not a year-end puzzle.
Keep the cash forecast honest
Your forecast should show the advance available, expected customer payments and facility fees as separate lines. A common mistake is counting the full invoice as cash still to come when most of it has already been advanced. That makes the bank balance look healthier than it will be, right when you’re relying on it.
Example: a recruitment agency invoices a client £20,000 and draws a £17,000 advance the next day. The bookkeeper posts the £17,000 as a customer payment, and when the client pays the lender a month later, nothing matches. Posting the advance to a facility account, recording the client’s payment against both the invoice and that account, and posting the lender’s fee as a cost means the sales invoices, the lender statement and the bank all agree.
What to check
- Agreement terms written down plainly
- Advances posted to a facility account
- Lender statement matched every month
- Fees and interest posted as costs
- Separate forecast lines for advances
Where to start
Take one month’s lender statement, your aged debtors, the facility agreement and the bank transactions, and work through them together. That sets the posting method for every month after. ACCA’s guide to cash-flow finance and invoice factoring is a good primer.