Choosing The Best Deal
There are a number of invoice finance providers out there, all with slightly different offerings. Finding the best option for your business isn’t always easy. Before signing up with a particular lender you should consider the following:
1. Credit Control – Factoring vs Discounting
If credit control is an issue in your business or is a hassle you could do without, you are more likely to be drawn to invoice factoring. The additional service could offer significant benefits to your company. On the other hand, if maintaining the relationship with your customer during credit control, or keeping the facility confidential is key, invoice discounting could well be right for you.
2. Total Charges – Not Just The Headline Figures
Understanding lender fees is important and discussing them with an experienced and impartial advisor can help you understand the total costs that will be incurred by your business.
3. Hidden Fees Or Terms
Not all providers will show the entirety of their fees in facility documents. Make sure you read all accompanying paperwork to ensure you understand all fees and terms. The results of a cost comparison between two providers can vary significantly if all fees aren’t taken into consideration.
4. Concentration Limits
A concentration limit is how much of the total facility amount is allowed to be with a certain debtor.
For example, if your concentration limit was 30%, and your facility £1,000,000, no more than £300,000 would be lent against invoices raised to this customer. If debt with your largest customer hit £500,000, then only £300,000 would be seen as eligible debt. This would effectively reduce the prepayment level.
Concentration limits only tend to become an issue if a single customer hits 20% of the total money owed to you. Some facilities will impose a strict 20% concentration limit whereas others would accept 100% of the debt with a single customer.
When looking to take on a new facility, consideration should be given to both now and what may happen in the future. By thinking ahead, issues can be avoided further down the road when you may need to release the funds quickly.