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• 06 Sep

  Mistake - 73% Think Invoice Finance Is As Hard To Qualify For As Overdraft

  When we spoke to a sample of 100 SME businesses about their financing we asked them to comment on how difficult they thought it would be to qualify for invoice finance (factoring & invoice discounting) as against overdraft.

  73% of respondents thought that it would be just as hard to qualify for invoice finance as to qualify for an overdraft. This indicates a huge misunderstanding about how easy it is to get invoice finance rather than an overdraft (see my previous post "Businesses Don't Understand How Easy It Is To Get Invoice Finance".

  We went on to ask those respondents why they though it would be as hard to get invoice finance as it would be to get an overdraft. 89% of those that said it would be equally hard said the reason for their answer was that it would be the "same process" to qualify for invoice finance as it would be to get an overdraft - this is a major misunderstanding as the credit underwriting processes for invoice finance and overdraft are completely different. Qualification criteria for invoice finance are based primarily on analysis of the quality of the sales ledger and debtors of a business. Underwriting criteria for overdraft tend to focus on the financial accounts and other tangible assets of the business or its owners/directors. Significant levels of funding can be raised through invoice finance even where a business has a no worth in its balance sheet and is currently not trading at a profit.

  The remaining 11% of those that thought it was equally difficult to qualify for invoice finance and overdraft said that they thought that their "credit rating" would be the key issue in both cases. Once again this is not the case. Credit rating may be important when granting an overdraft but previous adverse credit history can be overlooked by invoice finance companies as their prime concern is ensuring that the quality of the debtor book is strong. In this way even businesses with poor financials and previous adverse credit history can still get funding through invoice finance products such as factoring.

  By Glenn Blackman