There are many reasons why your small business may turn to invoice finance as a means to fund your future. Invoice finance is a scalable financing product that uses your accounts receivable ledger as security to provide funding. Instead of waiting up to sixty days for slow customers to pay your for goods or services rendered, invoice finance allows your business to access the cash in as little as twenty-four hours. Whether your business is rapidly growing, you need flexibility during seasonal trading periods, or you simply wish to leverage your unpaid invoices to access additional working capital, an invoice financing facility can be a fantastic help to achieve your goals.
Once you’ve established that invoice finance could be an appropriate financing solution, it’s time to select the right facility and lender for your goals. The company and product you choose may be one of the most critical financing decisions you make. Working capital is the bread and butter of a successful business, so a competent working capital finance partner is key to your business’s future success. Yet with every lender advertising that they are the ‘best’ – how can you differentiate between the pretenders and the real deal? Here are a few things to look out for when conducting your due diligence on a new invoice finance provider.
Evaluate their experience
Experience isn’t everything, but a company that’s been operating for many years is a good sign that they’re doing something right. It’s best to work with providers that have been around for at least a few years. This means that they’ll have serviced a broad range of existing customers, dealt with a variety of financing and business scenarios and have a strong understanding of how to manage an invoice finance portfolio. Usually, the longer they’ve been around, the better.
It also pays to keep in mind that the charismatic salesperson you first deal with is not the same person that will be managing your account. Ask who is, and understand their personal experience with managing clients similar to you. If the company has longevity and your account manager is a respected veteran of the industry, you’re off to a great start!
Do they specialise in businesses like yours?
Ideally, your financier should have in-depth knowledge of the ins-and-outs of your industry. If the provider you’re considering is a large name, the chances are that they will have experience and processes to suit most sectors, but it still pays to ask. Small providers have their advantages – one of which is often a deep specialisation in a handful of related industries. This means they understand the unique inner workings of your business and may have even dealt with your customers before.
“Invoice finance providers will have varying preferences when it comes to their typical client.”
Similarly, the size of your business also plays a role. Different invoice finance providers will have varying preferences when it comes to their typical client. You don’t want to be the smallest player on their books and swept under the rug. On the other hand, if you’re too large, you may not be able to access the scale of funding your growing business requires either. Make sure to ask them about the size of their average customer to determine if you’re the right fit for them.
Understand the details
You need to be aware of the nitty-gritty when entering into a facility. There are many different types of invoice finance facilities out there. For example, disclosed facilities involve a level of administration and interaction with your customers by your provider. Confidential invoice finance does not require your debtors to know that the provider is involved. Know the difference and what to expect.
“Check your contract and understand all the details that may impact your business down the track.”
Some lenders may allow you to select which of your customers you’d like to fund, and which you’d like to exclude. Others will insist that you must fund against your entire accounts receivable ledger. Some facilities also come with minimum periods, fees and funding amounts with expensive breakaway clauses. Check your contract and understand all the details that may impact your business down the track.
References and reviews
One of the best ways to assist any business is the word of their previous customers – have they had a positive experience? Search online and browse their verified Google and Trustpilot reviews and testimonials. If there are many negative reviews, it’s probably not a good sign. After you’ve applied, it’s appropriate to ask for references from their previous or existing customers. Try to speak to a similar-sized customer in your industry to get the best reflection of how your experience will be with the invoice finance provider.
Find an expert invoice finance broker
Even after doing your research, invoice finance can become quite complicated. It’s best to consult an experienced invoice finance broker to establish the most appropriate facility to help your business grow. Brokers will do the hard lifting for you by dealing with multiple trusted and proven lenders across their panel to help you find the best solution for your unique circumstances.
Capital Plus Finance is an experienced invoice finance broker that has your best interests at heart. The team at Capital Plus Finance will do everything we can to help you secure a suitable finance solution for your SME. Please give us a call anytime to find out more or to have an obligation-free chat about your business’s funding situation.
