Is Invoice Factoring right for you?

Let’s get this straight from the off, Invoice Finance is not the right cash flow solution for everyone. You will want to make sure it is the right path for you in your own mind, so you don’t waste any time getting quotes and signing up to paperwork just to be disappointed.

Our job is really to make sure it is right for you and will offer a decent practical benefit to your business.

It does have to be practical, there are plenty of people out there that will promise you all sorts, but we’re just not in that business – it has to work on a day to day basis for your company.

Invoice Factoring offers a practical solution to cash flow issues

Invoice Finance should not just be about ‘can I have it’, it also should be about ‘how can I make it work for my business’. This is one of the main bonuses of using a broker. We have seen many companies and know what they have done to be successful with Invoice Finance.

There are some basic points which need to be satisfied for lenders to consider you.

Are your customers other businesses?

If you are a mainly retail business then there are other solutions for you, but Invoice finance just isn’t one of them. You don’t produce invoices on set terms and so we have nothing to claim against.
Do you raise Invoices for work completed (either services provided or good supplied)
It makes it very difficult (I’m not saying impossible) to finance invoices that are part payments or step payments for work that is still being carried out.

Your turnover

Believe it or not, finance companies are in business to make money, no really they are. As their fees are based on your turnover, there is a limit to how low your turnover can be (or

If your sales are more than £50k p.a. Invoice Finance could be the right solution for you
expect to be if it’s your first year). Generally speaking, you turnover should be at least £50,000 p.a., otherwise you wouldn’t really feel the benefit, and the finance company won’t make a profit.
Like we said, Invoice Finance should be about how you can make it work for you as well. In order for you to get the most out of Factoring you may want to think about the points below.

How long do your customers take to pay

Let’s be practical about this. If most of your customers are paying within a few days then you are paying a service charge for something that will amount to little more than a couple of days worth of extra funding. Now you may be happy with this, that is your choice, but we would rather you were under no illusions about how much of a benefit it will be for you.

Do you have any bad payers in your ledger

Knowing which of your customers are bad payers can really help make your time with Invoice Finance at lot easier. Why is this important? If an invoice is unpaid, then it becomes ‘disallowed’, this means that the money you have had on these invoices will be recouped.
Your bad payers are the most likely source of disallowed invoices. The best approach for this is to think ‘if I use this money, how confident am I that the invoice will be paid’. We’re not saying don’t use the money from bad payers, but just be aware that if they don’t pay you may have to work with that.
With most businesses, there is a good history of paying, so you will have an idea of any problem areas.

Listen to what your Finance provider is saying

Your Finance company will make routine checks on your customers, they are very experienced in spotting a problem early. If they giving you the signs of a problem coming up with one of your clients, then take heed. It may be time to start looking for a replacement client.

How do you manage your sales relationships

Most people will opt for Factoring over Invoice Finance, you may well do the same. This will mean that your Finance provider will be chasing the invoices. This may seem like only a positive point, however, you are losing out on an important contact point. You have to have a think about how you will replace this s a contact point (generally it just means a call every now and then to keep in touch).

Use your time wisely

As you won’t be chasing invoices or managing your sales ledger, you will have a little time on your hands. In our experience the companies that get the most out of Invoice Finance use this extra time to best effect. They refocus this time on to marketing or sales. This produces more sales, more profit which means your actually up on profit from using Invoice Finance.

Who to exclude

For many clients there are one or two of their customers that they just don’t want to factor. This can be for many reasons, but more often that not it’s either that they are such good payers they don’t want to pay for someone else to chase the payment, or they have such a special relationship that they don’t want to risk anyone else tarnishing that. These are both very good reasons, and as such these customers invoices should not be factored, but this doesn’t mean that you can’t factor the rest of your invoices.

In order to get the most out of Invoice Factoring, it is worth taking a couple of minutes out to think about these points, not for our benefit, but for yours.