The truth about invoice finance
Ask 10 peoples’ opinions about invoice finance and you’ll get 10 different answers.
“Your customers will think you’re struggling”.
“It’s only for companies in trouble.”
Like most myths, there is, or rather was an element of truth behind these claims.
In the past, invoice finance didn’t have the best reputation. It was very expensive and businesses were often moved onto it by their banks if they were seen to be struggling.
But the perception of invoice finance is changing. There are more lenders entering the market, more businesses being started and payment terms are getting longer and longer. Legislation and intervention doesn’t seem to be helping with long payment terms, so invoice finance is here to stay.
“It’s only for businesses in trouble”
Invoice finance is actually very useful for growing businesses. As you expand and take on new, larger clients, you’ll often find the payment terms are much longer than your smaller clients. Add in the fact that the invoices are larger, meaning you might need more stock/ staff, and you have a recipe for a cash flow pinch down the line.
This is normal for a growing business, and using invoice finance can allow you to free up cash from the invoice, allowing you to operate your business more efficiently and pay staff and suppliers on time. You could even reinvest the cash into the business and take advantage of early payment discounts from your suppliers.
It’s true that some lenders are more expensive than others. And if you have a patchy credit history you will pay more than your highly rated counterparts. However, invoice finance is an extremely competitive world. There’s a huge number of lenders, and new lenders come and go all the time.
With so much competition, prices of invoice finance are coming down, with some lenders as low as 1.5% on a single invoice.
“My customers will think I’m struggling”
Perceptions are changing. Payment terms are getting longer and longer. The big retailers want to find the new hot products and are taking chances on smaller businesses. Often, these small businesses don’t have the cash reserves to wait 60 or 90 days for their invoices to be paid, so they’re using invoice finance.
It’s becoming more and more common and often big corporations have specific processes for working with invoice finance companies.
So while invoice finance can be expensive and can be used by struggling businesses, don’t be put off if you’re growing strong and worried about what might happen if you use invoice finance.
If you’d like to learn more about how invoice finance could benefit your business, get in touch today and one of our advisors will get in touch to discuss your needs.