Invoice finance is a simple means of borrowing that is free of many of the hazards associated with business loans and overdrafts.
With all borrowed money guaranteed by issued invoices, there is very little risk and no need for collateral or securities. Without credit checks or variable interest rates, the whole process is much more transparent and is a simple way for businesses to get the cash they need to keep moving.
However, to get the absolute most from your invoice finance provider, it’s worth knowing a few trade secrets that could mean a cheaper and more effective service for your business.
Have a look through our list of 4 invoice financing tricks for 2017.
Do Some Background Reading
As with any kind of financial arrangement, it pays to approach your company’s invoice financing with an understanding of how it works. Read up on terms like factoring period, account debtor and reserve to make sure you know what kind of facility you are signing up to.
More important still is knowing the differences between the main types of invoice finance available, so that you can make an informed decision about which one is right for your company.
Factoring – Here the financing company assumes control of your sales ledger, and takes on the role of chasing your clients for invoice payments. Once you are signed into a factoring agreement, all your invoices are dealt with in this way.
Selective Invoice Finance – Here the business owner chooses only the invoices they want to fund as and when they need to. This can be a more flexible approach for businesses who may not need to use invoice finance all the time.
Find the Right Provider for you
The number of facilities offering invoice finance is increasing every year, so it is inevitable that some will be better suited to your business than others. A small company looking to expand quickly will likely need a short term factoring facility to increase capital while it takes on additional expenditure. This may well include spot factoring, another word for selective invoice finance, where invoices are paid on an individual basis.
Communicate with your Clients First
Unlike other types of lending, invoice financing isn’t affected by your credit score. Instead it is the reliability of your clients and their payments which will ultimately determine just how valuable this type of trade finance could be for your business. Financiers will want evidence of payments being made on time and may sometimes reward this with less charges and better rates.
It makes sense therefore, to get in contact with your clients before you commit yourself to any factoring agreement to see if you can sure up any discrepancies with payments. Offering goods or services at a discounted rate, in exchange for punctual payments, will not only benefit them, but also ensure you are offered a higher advance rate by invoice finance providers.
Lookout for Restrictions and Hidden Expenses
You will need to find out if there is a minimum or maximum imposed on the number of invoices that your provider will finance each month. It is also imperative you know how to end your invoice finance contract at any time. This will guarantee you’re not left paying additional fees or reserves on invoices you don’t want financed.
Finally, don’t be afraid to ask questions of rates or fees that look too good to be true. Some providers will attach fees and charges without explicitly mentioning them, so look over any contract carefully before signing it and check any details you are unsure about.
The Jardine Norton Way
At Jardine Norton our approach is a little different to the majority of other invoice finance providers out there. We won’t tie you in to long contracts and will only charge you one fee when we take on an invoice. What’s more we can guarantee that in the rare case your customer can’t pay us once the invoice is due, we can still fund you the agreed amount.
Whether you’re a large multinational or a small business in the process of expanding, we’ve designed our service to work on your terms.