When it comes to invoice finance, finding the right funding partner is key.
It’s too easy at times to be distracted by the first tranche of funding that you receive from your funder as it may be needed urgently to fund a specific business need. However, when you sign up to an Invoice Finance agreement you are entering an ongoing relationship with a funder which should work for your business and support your growth. It’s important to consider all aspects of the facility and how it works and compare this across the various funders you are talking to.
Pulse Cashflow have put together a checklist of items to consider when choosing your invoice finance provider.
Amount and speed of payment
The amount of funding you can access against invoices varies from funder to funder, with most offering up to 90%. This means that you can receive up to 90% of the invoice value up front, with the remaining 10% available after the customer pays. It’s important to understand what this initial percentage is as it is based on the funders assessment of the credit worthiness of your customers. Funds are normally advanced within 24 hours of the invoice being raised. If this is not the case, you need to understand why.
Be clear on what you are paying
There are two main costs associated with invoice finance: the cost of the money you use and the service fee. The cost of the money you use, is charged as a percentage over base rate – normally between 0.5 and 3%. Obviously, the more funds you use the lower the percentage you will be charged. The service fee is a cost of having the facility in place and is calculated as a percentage of your business's annual turnover. This can be up to 3% if you are using their funding and credit control solution.
You need to ensure you funder is as transparent as possible as there may be other costs such as an initial set-up fee and an early termination fee which should be disclosed upfront. Be sure to ask your finance provider for clarification on ALL the costs.
Flexibility is key
Running a business isn’t easy or predictable! Ensuring your funder is flexible in how they work with you is really important. You could argue you won’t know this until after you have signed the agreement with them but there are signs that you can pick up on from the moment you first talk to a funder. How much effort do they put into understanding your business and what you are trying to achieve. Do they try to shape the facility to your needs. Will you have a dedicated account manager who will continue to work with you to ensure the facility works well and to resolve any issues should they arise.
When is credit control not credit control?
Most Invoice Finance providers will give you the option of collecting your own customer payments through Invoice Discounting or outsourcing your credit control through Factoring. Which solution does depend on your need, your size, and how robust your own internal invoicing and collection processes are. Outsourcing your credit control frees up effort and time chasing payments which can be focussed on growing the business. It is important that you understand what the invoice financier will actually do. What percentage of your customer base will be chased – is it just your biggest customers where there is a lot of money out, or is it your whole ledger. Your biggest customers could be your most reliable payers whereas the smaller customers who buy sporadically may not pay quickly and therefore need following up. Do they use both email and phone or just email? Ensuring your funder delivers a robust process that suits your business is vital.
An open, transparent, and fair relationship with your funder is so important. It’s the foundation of success. Will you have a dedicated account manager who is always there to respond to any issues or queries you may have. How easy is it to access the decision makers to ensure fast decisions are made when you need them. Independent providers tend to focus on providing a more personal services but it’s worth getting some client testimonials to get their view.
Protecting your business
Funders offering bad debt protection against customer non-payments can be a good option for businesses looking for an extra layer of security. While it does come with an additional cost, it can be worth it for businesses that may be at risk of non-payment from customers. Having bad debt protection can help to mitigate the financial loss associated with unpaid debts and provide peace of mind.
Industry experience and client testimonials
It's important to do your research and make sure that the funder you're considering is a good fit for your business needs. It's a good idea to reach out to the funder and ask about their experience funding other businesses in your sector. Financial intermediaries can be a huge help here as they work with a range of funders and can recommend who will be the best fit. Customer review sites like Trustpilot and Feefo can be great resources for understanding the market opinions of a funder.
Pulse Cashflow at a glance.
Pulse Cashflow provide flexible funding solutions, coupled with our bespoke client service to help support your business’s growth.
- Access up to £5m in funding
- Up to 90% of invoice value within 24 hours
- Simple and transparent single fee structure with no hidden surprises so you can budget with confidence
- Dedicated client manager and credit control team
- Optional confidential service so your customers aren’t aware of our involvement
Get in touch today to see how your business can benefit from our funding solutions. Call us on 0845 539 7003 or email firstname.lastname@example.org.