Article - 10 Things To Check When Considering Invoice Finance

This article explains 10 things to check when considering using invoice finance.

This our ten point checklist for businesses considering using invoice or sales finance:

  • 1) Invoice Finance Company - who are the invoice finance company that you propose to use? Who are they backed by? Have they won any recognised awards? Are then members of the ABFA (Asset Based Finance Association) the industry body (now part of UK Finance) for invoice finance that has operates a complaints handling process and arbitration for its members if you should ever have a dispute. Its members are also bound by its code of practice.
  • 2) Costs & Charges - consider all the charges not just the headline rate (normally called service charge which is often a percentage of turnover) when comparing quotations. There may be discount charge (that works in a similar way to interest on a loan) and there can be other charges. You should ask for a full breakdown of the charges and work out how much they are all likely to cost you - not just the headline service charge.
  • 3) Length Of Contract - the length of the contact that you enter into can vary dramatically between different invoice finance companies. In some cases you can have a contact where it has no minimum period but bear in mind that there might be a price premium for such flexibilty. 
  • 4) Funding Restrictions - once again ask the invoice finance company for a full list of the restrictions that could be applied to your funding. These can include: funding limits, prime debtor restrictions, payment ceilings and reserves. Its important you understand them all as other invoice finance companies may not apply the same restrictions. 
  • 5) Collections Service - if you are to receive credit control support as part of your facility check exactly what that service entails. In many cases it is a full credit control service where the factoring company undertakes all the work for you but in others it can be a much reduced service e.g. only chasing the larger accounts. Once again there may be a cost question attached to this but its important to understand what you a buying and what you need. You may prefer to handle the collections yourself.
  • 6) Staff To Client Ratios - these can be helpful to understand. What is ratio of clients to Client Relationship Managers as they will sort out any problems you might have. If you are using factoring what is the ratio of clients to each Credit Controllers. This will give you and idea of how big the workload is for each Credit Controller and hence how much time they are likely to dedicate to your account. These ratios differ between invoice finance companies. 
  • 7) Electronic Access - ask to see their electronic link with their clients (if they have one!). Many of them allow you to upload your invoices or your full sales ledger which can save you a lot of time. Also understand how up to date the information is - if its always a day out you might find that a problem in the future.
  • 8) Invoice Selection - can you select the invoices to receive funding against or is it a whole turnover style arrangement? If it is whole turnover, what happens about any invoices the invoice finance company chooses not to fund? Do you still have to pay service charge on them?
  • 9) Debtor Days Outstanding - if you are considering using factoring, ask what the average debtor days outstanding is across all their clients. The Q2 2013 figures from the ABFA overall was 55.9 days outstanding so you can use that average as a benchmark to compare.
  • 10) Notice of Termination - importantly, how much notice of termination do you need to give the invoice finance company? You may also aks if they offer a trial period during which you can terminate without penalty if you arn't happy. There are lots of different arrangements available.

The ten point checklist above is not exhustive and there are many more things that you should consider. The key point is that there are dramatic variations between invoice finance companies so be sure to shop around before you take up an invoice finance facility.

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Examples of just a few of our finance partners:

giant finance
ultimate finance group
leumi abl
time finance
lloyds bank