Invoice finance and factoring are reliable solutions for obtaining funds for a developing business. However, one needs to understand the market before taking up any of these financing options, as there are several other options of funding available. Listed below are 5 tips that will help you in making informed decisions:
1. Save money on borrowing costs
As a business owner you should only draw down funds that are required from the financier, as funds borrowed will attract an interest payment for the amount of time such funds are outstanding.
2. Confidential financing - factoring
The choice of method depends on the finance team that a business has employed. In the event that there is a bookkeeper that takes care of all invoice related processes including recording customer payments and dealing with the company bank account, confidential discounting is the most attractive option. However, if an organization is small and does not have a finance team at its disposal, it is sometimes preferable to use the services offered by a factoring provider as it is cheaper than employing a bookkeeper. Their role is to deliver statements, get payment by phone and in difficult cases, draft legal letters chasing payment.
3. Renewal and notice period
It is best practice to understand any terms and especially the lock in period and date end that is agreed with an invoice financier. This allows business owners to search for a better provider to be found or a better deal to be negotiated.
4. Insurance for bad debt
Funders will usually analyse a specific industry and company customer base before entering into any deal with an invoice finance provider. There are often fluctuations in markets and during difficult times many companies liquidate, which results in bad debts. Administration or liquidation scenarios has a serious impact on other companies so it is better to have an insurance protecting against bad debt so that cash flow and an organization’s ability to trade are not affected.
5. Investigation of old debt
If a company has debts older than 60 days, a funder will enquire as to why they are actually delayed or are not making payment. All issues regarding old debts should be resolved quickly. The issues may be hours charged, disputing rates and pricing. The attention is usually on higher value invoices and also understanding any bad debts.
Trade Finance Global recently released their invoice finance guide, find out more about the different types of invoice finance and how it can SMEs here: https://www.tradefinanceglobal.com/invoice-finance/