What is a Reserve Amount in Invoice Financing?
Discover what a reserve amount (retention) is in invoice financing and discounting for Ghanaian SMEs, how it protects against payment variances, and when it is disbursed.
What is a Reserve Amount in Invoice Financing?
In receivables financing and invoice discounting, the reserve amount (also known as the retention or escrow balance) is the percentage of an invoice's gross value held back by the financing platform until the end customer settles the payment in full.
When you finance an invoice, the funder releases an upfront cash sum—the advance rate, typically between 80% and 90% of the invoice face value. The remaining 10% to 20% forms the reserve amount. Once your customer pays the total invoice into the designated collection account, the reserve amount is remitted back to your SME, minus the financier's flat discount fee.
Practical Example: GHS 100,000 Distribution Invoice
Consider a commercial supplier in Accra providing packaged edible oil to a supermarket chain:
- Gross Invoice Total: GHS 100,000
- Agreed Advance Rate: 85% (Immediate payout: GHS 85,000)
- Reserve Amount (15%): GHS 15,000
- Agreed Built Float Fee (4.5%): GHS 4,500
Upon verification of supply via a Goods Received Note (GRN), Built Float transfers GHS 85,000 to the supplier within 24–48 hours to replenish working capital.
When the supermarket settles the full GHS 100,000 at day 45, Built Float releases the GHS 15,000 reserve, deducting the GHS 4,500 fee, remitting GHS 10,500 directly to the supplier's bank account.
| Phase | Transaction Event | SME Liquidity Movement | |---|---|---| | Day 1 | Invoice Issued & Verified | + GHS 85,000 (Advance) | | Day 1–45 | Payment Term Running | Working Capital Active | | Day 45 | Buyer Settles GHS 100,000 | + GHS 10,500 (Reserve minus 4.5% fee) | | Total Realized | GHS 95,500 | Total Fee: GHS 4,500 |
Why Do Receivables Financiers Require a Reserve?
The reserve amount serves three strategic functions:
- Buffer for Incomplete Settlements: If a buyer deducts withholding tax, minor breakage penalties, or issues a small debit note, the reserve absorbs these variances without triggering default.
- Incentive for Ongoing Credit Control: In Built Float's recourse invoice discounting model, the reserve aligns the supplier's incentive to assist with follow-ups until full settlement occurs.
- Coverage for Delayed Payment Surges: If payment stretches beyond grace periods, any standard late fee (such as 3% beyond 30 days past due) can be transparently netted against the retention sum rather than requiring new capital.
Frequently Asked Questions
Is the reserve amount kept permanently by Built Float?
No. The reserve amount remains your company's funds. It is released immediately once your buyer remits the invoice balance, minus the agreed 4-5% discounting fee.
Can high-volume Ghanaian businesses negotiate a smaller reserve?
Yes. Established suppliers with proven track records of prompt customer settlements can qualify for higher advance rates (e.g., 90%), reducing the reserve to just 10%.
What happens to the reserve if my client pays with deductions?
If your client applies legitimate statutory deductions or notes for damaged goods, the shortfall is covered by the reserve, and the remaining surplus is credited to you.