Used by over 40,000 businesses, invoice finance is great way to boost your cash flow by selling invoices to a financier, who in turn pay you a % of the total invoice value upfront, before collecting payment from your end client at a later date.

As is common in many industries, there are many terms that can be confusing at first glance.  To help you go from being an invoice finance novice to an expert we’ve put together a glossary of invoice finance terms that you need to know.

Aged Debt Report

  • Report detailing outstanding debts by their due date or invoice date.
  • With Sonovate: you receive a weekly aged debt report.

Advance Rate /IP% (Initial Prepayment%)

  • The percentage that an Invoice Financier will advance against an invoice. This ranges from financier to financier and is typically between 60-90% of the gross value of the invoice.

Assignment of Debt

  • Assignment of Debt related to the legal mechanism by which an Invoice Financier obtains the right to collect cash directly from your debtors to repay amounts that they have advanced to you.


  • The amount of cash available to you to draw from the Invoice Finance facility. It is usually calculated by multiplying the total eligible invoices by the advance rate, less charges.

Bad Debt

  • Typically a debt that cannot be collected because of protracted default and/or insolvency of the debtor.

Bad Debt Protection

  • This is a Credit Insurance which provides protection in the event of non-payment of invoices due to insolvency or protracted default of a debtor.
  • With Sonovate: we include Bad Debt Protection to provide security and peace of mind in the event of non-payment or insolvency by your clients. 


  • The process of sending invoices.


  • Able to send invoice.

Billing Frequency:

  • How often a customer can bill and have invoices sent to their clients.

Cash Allocations

  • Payments from a customer’s clients and how they’ve been allocated. A cash allocations report is used to reconcile cash and invoices.

Credit Limits:

  • The maximum value of outstanding protected debt we allow a customer to have per client funded against.

Credit Terms

  • These are the payment terms that are given to customers and indicate when payment is due. An example would be 30-day terms and these should be shown on invoices.

Current Account/Funds In Use

  • The total sum of all funds drawn down against the Sales Ledger.


  • The recipient of the services your business provides. The customer is responsible for paying the invoice issued by the financier,


  • A form of security document creating fixed and floating charges over all the assets of the entity against which security is being taken.
  • With Sonovate: a debenture is only registered when more than five contractors are running.


  • A person or entity that has been supplied with goods or services by the client and is obliged to make payment for them. Also sometimes referred to as ‘customer’ but care should be taken to distinguish between the client/customer of the invoice financier and their debtor/customer.

Debtor Concentration

  • The percentage value of individual debtors against the total Sales Ledger value.


  • Items which can reduce the value of outstanding customer invoices e.g. credit notes, bad debts, disputes.

Disapproved Debts (Disapprovals)

  • Disapprovals are debts which an Invoice Financier will not provide funding against. Reasons vary but the typical ones are if the debt is more than 90 days old (aged), or if the debts are disputed by the debtor, or those debts which are known to be bad or irrecoverable (e.g. the customer in liquidation).


  • Invoice Financiers typically charge two standard fees, an agreed fee usually of a small percentage of  the invoice value, and a set interest fee on the funds advanced. Disbursements are additional fees and can be for paying in excess of the agreed prepayment, CHAPs fee or other small charges typically levied for things like postage, stationery and call charges etc to do with exceptional services involved in serving an invoice finance facility.
  • With Sonovate: our fee is a percentage of your turnover and is deducted per invoice. If you don’t use Sonovate – you don’t pay for Sonovate. We do not apply fees for postage or stationery. CHAPs is charged at £15.

Discount Margin

  • The charge for borrowing money and is usually shown as a cost over base rate. It can be equated to the interest rate paid on an overdraft facility.

Effective IP% (Initial Prepayment%)

  • The percentage value of invoices available to advance.
  • With Sonovate: when you transfer to sonovate, the cash locked in cycle with your current financier is released upfront. Thereafter, on each invoice cycle you receive 100% of the invoice value upfront. Try our invoice finance calculator below to see how much profit Sonovate could release to your business.

Entitlement (Benefit of)

  • The funds due to the agency which is the difference between the IP% and the total Sales Ledger value.

Export Factoring

  • A factoring facility provided to a client who invoices customers abroad.
  • With Sonovate: we’ve funded placements in over 39 countries

Facility/Funding Limit

  • The maximum balance to which the current account can be drawn at any given time. This limit is often flexible by negotiation with the invoice finance company.

High Involvement/Concentration Limits %

  • A concentration limit limits the amount of exposure a lender has to a single debtor on your ledger. For example, if your concentration limit is 40% and your total ledger is £200,000 then the lender will only consider £80,000 of funding with any single debtor.
  • With Sonovate: Providing your clients are credit worthy, Sonovate will not restrict businesses by implementing concentration limits.
  • Read more about concentration here.


  • The value of debts which are disapproved (see above).

Invoice Discounting

  • Invoice discounting is purely money all other responsibility remains with your business – (credit control, payroll, etc)

Invoice Factoring

  • Invoice factoring is where your business sells their invoices to a third party at a discount. In addition to providing finance, the financier also performs credit control and collects payment on your behalf in a disclosed manner.

Invoice Factoring with Back-office

  • This is where your business factors invoices with financier in a disclosed way (i.e. the financier collects money on behalf of the your business in the financiers name.)
  • The product is accompanied by back office functions to support, manage and administer the running of contractors. 

Minimum Fee

  • The fee contractually payable to the Invoice Financier irrespective of invoicing volumes i.e. a service fee is agreed but if the value of the agreed ‘Minimum’ is not reached or exceeded this fee will kick in.

Non-Recourse Factoring

  • The Invoice Financier provides full credit control, sales ledger management and collections service. Should the debtor not pay then the funder takes on the debt assuming there is sufficient credit insurance in place.

Notice Period

  • The contractual notice period which must be given by either party before a facility can be terminated. This period would normally be linked to, but distinct from, a specified minimum period.
  • With Sonovate: No long-term contract and only a 30-day notice period to exit.


  • This is a situation where the level of funding exceeds the agreed level of funding.

Personal Guarantee

  • Security taken personally against the directors of the business to be called upon in the event the funder is unable to collect funds from the Sales Ledger.
  • With Sonovate: No personal guarantee required.


  • The maximum percentage value of your invoices that will be available for you to draw in advance.


  • A debt previously assigned to an Invoice Financier which has been returned to you.

Recourse Factoring

  • Under a standard recourse factoring arrangement, the Invoice Financier will seek to recover from the client advances made to the client in respect of any debt that is not collected within a given time period (usually 90 days following the month of invoice).

Recourse Period

  • The period of time the Invoice Financier will fund an invoice after which the invoice values will be taken back through availability.

Refactoring Charge

  • A fee charged by an Invoice Financier when an invoice is recoursed back to the client. It is usually expressed as a percentage and then charged against the VAT inclusive invoice value.
  • With Sonovate: no fees or charges applied.


  • A specified amount of funds, often expressed as a percentage of the funding line that is used to cover bad debt expenses and payment shortages.
  • With Sonovate: we do not enforce reserves, so no need to worry about any of your profit being withheld.

Sales Ledger

  • The ledger that shows all the outstanding sales invoices that have been sent to customers and remain unpaid at any point in time.

Service Fee

  • The charge taken by an Invoice Financier for the administration of the facility. This is typically expressed as a percentage of sales and is likely to be higher for a full factoring service than for invoice discounting in view of the additional workload involved.
  • With Sonovate: no service fee is charged.


  • This is completed by an Invoice Financier most usually on ID facilities but also included in factoring too. It seeks to understand the operational infrastructure of the business and if it can support a facility securely.

Take On Debts

  • The value of the Sales Ledger at the point the new facility commences. This will form the basis of the initial advance with a new funder in the event of an Inter-factor transfer.

Unbilled (Timesheet)

  • A timesheet that has been submitted and approved, but not yet used to fund.


  • Unable to send invoice.

Unfunded Cash

  • Cash paid to Sonovate for an invoice we did not fund. In most instances, it is returned to customers without taking a fee.