Article - Invoice Auction Sites The Advantages And Disadvantages

The Advantages and Disadvantages of Invoice Auction Sites

Invoice finance auction sites are a relatively recent phenomena to launch within the UK which have both advantages and disadvantages over traditional invoice finance companies. The principles on which invoice auction sites work is as follows:

  1. The client enters into an invoice auction arrangement with the company that runs the invoice auction site. This can typically involve the payment of a joining fee.
  2. The client can upload sales  invoices to businesses that they wish to auction.
  3. Funders and investors bid on the auctioned invoices stating the amount of finance they will provide, the period for which they will provide it and the fee that they will charge. The auction site will also charge a handling fee.
  4. The client receives the funding and once the invoice is paid the payment repays the finance released by the invoice auction site.
  5. The client is free to repeat this process for further invoices or they can choose not to finance any further invoices.

Advantages of invoice auction sites:

  1. Funders are bidding against each other in order to finance your invoices therefore you should achieve a competitive price quotation.
  2. Normally there is no lock in or minimum contract period so you are free to leave the arrangement at any time without the need to give notice of termination.
  3. Flexibility - you can select which invoice or invoices you wish to auction and there is no obligation for you to auction all of your invoices - selective invoice finance.
  4. Security - some of the invoice auction sites require very little additional security such as personal guarantees.

Disadvantages of  invoice auction sites:

  1. Whilst you can control your costs carefully by only funding selective invoices, the cost of accessing short term funding on a selective basis can be disproportionate when compared with a whole turnover style arrangement.
  2. Workload - if you intend to raise finance against invoices on a regular basis, some comprehensive whole turnover facilities are more simple to administrate then auction sites where you need to deal with individual transactions. For instance, there are invoice finance products available whereby you can upload your entire sales ledger in the background on your PC direct from your accounting system.
  3. Not all funders purchase invoices via auction sites. There can be other funders available as alternatives.
  4. If your business has a high risk profile, financing from an invoice auction site may not be available whereas it may be available from particular specialist invoice finance companies.
  5. As each transaction, or batch of transactions, are individually auctioned the cost of funding can vary between transactions making it difficult to price your sales or predict your costs.
  6. When you auction an invoice you are required to disclose any contracts relating to that transaction. If such contracts are of a confidential nature this can cause an issue for some businesses as the contracts are visible to potential bidders.

Overall, there are both advantages and disadvantages in using an invoice auction site in order to finance your invoices. The best method of raising invoice finance for your particular business will depend upon your circumstances and your requirements. Using an invoice finance auction site may be the best option for your business or it may be more appropriate for you to deal with alternative invoice finance companies that are able to meet your particular requirements - an invoice finance broker will be able to advise you regarding the options and put you introduce you to either traditional invoice finance companies or invoice auction sites.

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