Member Article

The 3 biggest myths of invoice financing

Three common myths about invoice finance and why borrowing can in reality be the best

option for business growth.

“Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.“ Hamlet, Act 1, Scene 3

Polonius in Hamlet spoke many words of wisdom and his advice on borrowing may have been appropriate for the time.

Even today, the common view among the uninitiated is that debt has bad connotations.

Intelligent borrowing is good

But for ambitious companies with well-planned business models, securing good-quality funding can be the key to growing profitably.

With many businesses thinking more broadly about how to execute their growth plans, invoice finance has become an important source of funding.

During the final quarter of 2014, for example, more than £19.4 billion was secured through asset based finance, including invoice finance. An all time high.

Have you considered invoice finance for your business’s funding needs, but have been put off by misconceptions about this type of funding? Don’t be deterred.

Here are three common myths…

Myth 1 - Invoice finance is inflexible

Perception

• Charging structures are complicated and confusing.
• Lenders expect you to submit all your invoices.
• Invoice finance arrangements are difficult to exit.

Reality

• Different invoice providers offer different terms and conditions. You can choose the type of arrangement that suits your business best.
• Many lenders operate on an “as needed” basis, which enables you to borrow against individual invoices as required.
• Some lenders operate with fixed-term contracts, but as-needed arrangements are more flexible.

Myth 2 - Invoice finance will damage customer relationships

Perception

• Invoice finance providers will come between your business and its customers.
• Invoice finance providers will upset your customers.
• The use of invoice finance is bad for a business’s image.

Reality

• If you prefer you can retain control of collections for your business. Your customers don’t even have to know you are using invoice finance.
• Invoice finance providers have sophisticated credit control functions that can improve your business’s collections processes efficiently rather than aggressively.
• Improved cash flow will enable your business to offer better terms and service to customers and suppliers alike, improving its relationships with key partners.

Myth 3 - Only failing companies use invoice finance

Perception

• Invoice finance is for companies in financial difficulties
• Invoice finance is old-fashioned and out-of-date.
• Invoice finance providers are lenders of last resort for companies turned down by the banks.

Reality

• Invoice finance will enable your business to unlock the value tied up in its unpaid invoices and to increase funding in line with your sales growth_._
• Invoice finance is one of the fastest growing types of funding, used by more than 40,000 companies in the UK at every stage of the business cycle.
• Independent invoice finance providers have more flexibility than high street banks, enabling them to better understand business’s challenges and funding needs.

Five reasons to think again

If you have never considered alternative sources of funding, ask yourself: “Why would I choose invoice finance for my business?”

Reason #1

It can unlock the value in your unpaid invoices 20% of companies say late payments have risen over the past year.

Reason #2

SMEs are growing fast as the economy recovers: invoice finance enables your business’s funding facility to increase in line with sales

Reason #3

SMEs that take advice and support are more likely to be successful: invoice finance providers build close working relationships with their customers.

Reason #4

Traditional financial support remains in short supply with one in four applications for bank loans or overdrafts still being turned down. Invoice finance frees up capital so your business can invest for the future.

Reason #5

The economic environment has changed for the better following the financial crisis as alternative lenders are filling the financial gap and offering support to British SMEs.

Don’t be put off by antiquated myths around invoice finance

The benefits are plain to see, which is what makes this alternative funding solution so popular with thousands of businesses across the UK.

Think again

• Could improved cash flow enable your business to negotiate better terms?
• Are you looking to expand your funding in line with your sales growth?
• With invoice finance, would you want to retain control of your collections process or hand it over to your funding provider?

This was posted in Bdaily's Members' News section by David Thomson .