Type ‘Selective Invoice Finance’ into your search engine of choice and you’ll find a lengthy list of companies offering the chance to ‘sell’ your invoices. It’s a tried and tested approach to give small businesses a cash flow boost when they need it most.
There are a number of advantages of using this service over one of the factoring services offered by the banks – it’s quicker for a start, and you are not tied in to a long-term contract or subjected to credit checks.
However, when you’re looking around for selective invoice finance it’s also worth being aware of the differences between the various providers. One of the main things to ask is whether the selective invoice finance company you are considering is a Broker or a Principle Funder.
If the company is a Broker, it means they are acting as an agent that will refer you to a larger, third party finance provider.
If the company is a Principle Funder, it means they will use their own capital to fund your invoices.
This makes a difference to you for three major reasons.
Firstly, as in other industries such as insurance or travel, a broker will take a referral fee if you choose to go with the company they find. It’s worth looking to see whether this will affect the amount you pay in the long run.
Secondly, you should also be aware that just because a broker has referred you, there is no guarantee the larger company will agree to fund you, so the process may involve a little back and forth until you find a provider that will.
Finally – and most importantly – there may be a difference in the securities you will be asked to provide. Because they are essentially lending someone else’s money, brokers will typically require you offset their risk with your home, your vehicle or other assets. While in the majority of cases you will not need to rely on these securities, it’s worth being aware that providing them can put you at extra risk.
Principle Funders have more freedom to decide whether they will require securities or not. Because they are using their own capital to fund your invoice, it is possible for them rely on their own due diligence process to help determine whether they are able to fund your invoices or not.
At Jardine Norton we operate as a Principle Funder. We don’t require any securities from your business and we fund 90% of the invoices we receive.