- 21 Jun
When Can You Terminate Your Invoice Finance Facility?
Anniversary termination is one misconceptions that is common amongst existing invoice finance users. We come across many existing users of factoring, and invoice discounting, that are under the impression that they can only leave their present provider on, or around, the anniversary of their facility. This is rarely the case.
We have noticed that a number of new clients seem to be under the impression that they can only leave their existing invoice finance company at the anniversary of their facility but there was only one instance we came across of a provider where this was the actually the case.
How Termination Works
Within the invoice finance arena, there are generally two ways that agreements work. If you are using a selective invoice finance arrangement, there is typically no minimum period or minimum fees applied to the agreement. It works such that you select the invoicing you wish to discount, and you can stop using the facility at any point.
The downside of these types of facilities is that it is often cheaper to discount all of your invoices, using a whole turnover style facility, which normally achieves a cost saving whilst maximising funding.
When using a whole turnover facility, it is typical that the client will enter a contract for a minimum period of 12 months. This is not always the case, it can be shorter or longer and some facilities work on a much shorter period. Also, there are providers that will offer initial service quality guarantees, whereby clients are able to leave if they are not satisfied, during an initial period.
Notice Of Termination
However, in the normal course of business it is typically a 12 month initial contract thereafter subject to a specified period of notice of termination (normally 3 months). This means that you have to provide the agreed number of months notice, in order to terminate the facility.
When Can You Give Notice?
What clients are often unaware of is the fact that you can give this notice of termination at any time during the year. You do not need to wait until the anniversary of the agreement.
The other exception to the rule is when an invoice finance company agrees to amend the initial offer. For example they may offer to reduce their fees, or they may increase the funding formula. At this point, they may look to tie their client in for a further 12 months minimum period.
Every individual situation is different, and we will happily discuss your situation in order to enable you to understand the options. However, providing you have served the minimum term (minimum period), it is likely that you can give notice of termination at any time. This means, that you can potentially take advantage of improved rates with an alternative provider, or and improve funding formula to release more cash to your business.
See our related article: How To Get Out Of A Factoring Facility.