The Rights and Wrongs of Invoice Finance

Invoice financing means getting paid for work you’ve already done, so is free from the uncertainty that plagues other forms of borrowing.

It’s little surprise that business invoice finance has snowballed in popularity in recent years, with the option for quick and risk free working capital proving attractive to business owners who don’t want the long term commitment and expense of a loan.

But as small business invoice factoring becomes mainstream, an increasing number of providers are appearing, each with their own list of rules, legislation and fees. Choice in the market is never a bad thing, and some providers will be more suited to your business than others. But it’s good to have a little knowledge about what good practice in SME invoice finance looks like before you sign the dotted line.

To help you choose the provider that’s right for your company, here’s our list of invoice finance rights and wrongs:

Quick cash when you need it

Many businesses take several months over making invoice payments, leaving your company temporarily at a loss and without the financial security to take on additional expenses. Trade finance provides the reliable injection of revenue needed to stabilize and expand.

But don’t pay too high a price

A shrinking number of business invoice finance providers are still overcharging for their services, or add on extra service fees throughout the process, making too much of an indent into the profits of the companies they work with. Make sure you read the small print before deciding on a financier in order to avoid paying more than you should.

Your sales ledger in safe hands

Trade finance providers are experts in negotiating and can get your customers making their payments faster. Not only will this strengthen client relations and keep your provider happy, but efficient invoice payments will mean less interest and lower fees for you.

A potentially precarious job

Control of your company’s sales ledger is a serious responsibility, so you need to be certain it is being handed over to someone trustworthy. Contacting strangers in the name of chasing up your payments requires a delicate and most importantly, an ethical approach. If your trade finance provider is too aggressive in their communications, you could lose valuable customers and see relationships you’ve worked hard to build quickly soured.

Complimentary credit checks

One of the most frequently overlooked perks of small business invoice factoring is the help and guidance that providers can offer with regards to selecting and taking on new customers. Cooperative clients and quick payments are in their interest as well as yours and as a result many trade financiers will carry out credit checks on your potential business partners. This can save your company vast amounts of time and money, keeping relations simple and fees to a minimum.

A new face for your firm?

Having your provider credit check possible clients can be advantageous, though it’s important that they are looking out for your company’s best interests and not deterring potentially beneficial trade. Low risk will suit most finance facilities but like all successful companies, yours will likely need to take a few chances to achieve its goals. You need a financier who understands this and won’t try to stand in your way.

See a change in unreliable clients

Associating your company with an invoice finance provider shows intent and could serve as a gentle reminder to your clients that their payments need to be made on time.

Assurance for your partners

Using a trade finance provider to bring an air of assurance to proceedings can be an effective tool, but it is important that it does not deter your clients. Generally this shouldn’t be the case – using invoice finance is often a sign that a company is growing. Still, if they ask, it might be worth letting your clients know that you’ve chosen to use an invoice finance service to help your business grow faster rather than because you are struggling for money.

Watch our short video – Will my Customer Mind?

Take the pressure off

On top of the assurance that comes with quick payments, perhaps the greatest advantage of small business invoice finance is the stress it alleviates and opportunities it offers bosses who are stretched for time. Periods of the day that were once reserved for chasing late payments can instead be put towards company progression and finding new opportunities.

Maintain responsibility

A trade financier in a position of control over company proceedings may attempt to place restrictions on expenditure or limit funding for trade with customers it doesn’t approve of. This could have a negative effect on daily operations and leave a company struggling to find willing business partners. To prevent this kind of unwelcome impact, it’s important that you fully understand any invoice finance agreement prior to signing it.

At Jardine Norton we’ve seen that most problems with trade finance are caused by a lack of understanding and providers that forget about the companies they serve. That’s why we’ve designed our invoice finance process to be completely on your terms.

We won’t ask you to sign long term contracts, and we won’t try to take over your company. We just provide the money you need, when you need it, with only one fee agreed upfront.