Call us: 03330 113622

Blog home
Categories
Popular Posts
Recent Posts
Archive

• 28 Dec

  How To Choose The Right Invoice Finance Company

  

  Customers often ask us how to choose the right invoice finance company for their company. We are frequently asked this question, so I thought it might be helpful to put down in a post my top tips for picking the right invoice financing company for your business.

  How To Pick The Right Invoice Finance Company

  Firstly, you need to recognise that there is no single best provider that will be the ideal choice for everyone. There are big differences between funders and the products that they offer. It is not a case of one size fits all.

  These are a few tips when picking a factoring or invoice discounting provider.

  Pricing

  The most obvious way to choose between providers is by price, and we have conducted a lot of finance pricing research. However, as a sole method of selection, this has a lot of drawbacks. Firstly, it ignores product differences (not all service levels are the same), funding differences (some funders will provide more money than others) and service levels (we have seen big swings between different provider's satisfaction ratings).

  Understanding The Rates

  Secondly, comparing rates needs more than a cursory glance at the headline percentages. Often, different providers will package their pricing within their offer letters in different ways. A provider may set the service charge percentage so that it seems low. However, they may load up the other charges, or discount fees to counter that difference. Often buyers don't look beyond that headline service charge percentage. That could be a mistake.

  Minimum Fees

  We have also seen examples of minimum fees being set at levels that are sure to bite. This means that even though the service charge percentage appears low, based on the client's projected turnover the minimum fee will come into force increasing the charge above the percentage quoted.

  Funding Levels

  Not all funders provide the same amount of funding. Some will be more or less liberal. This can be more complex than just looking at the headline prepayment percentage. Other factors may come into play, e.g., prime debtors restrictions, credit limits, recourse periods or other restrictions. These can reduce funding levels below the quoted prepayment percentage.

  Product Differences

  What you get from the product you select can be very important. There may be an additional charge for a function such as bad debt protection. However, this could be more important than just getting the cheapest quote if you are worried about bad debts. So, understand the products that are being offered and ensure you are comparing "apples with apples". The different products are explained in our guide to invoice financing.

  Service Levels

  The service provided will not be the same at all invoice financing companies. In some cases, a service such as credit control will be fully comprehensive. In others, it will be more of a risk control mechanism that just focuses on your largest accounts receivable. Take a look at customer reviews for your provider, particularly if they are available from an independent source.

  Other Factors To Consider

  There are also other factors to consider. For example, you may want to choose a provider that is a member of an industry body such as UK Finance. This can mean that they subscribe to a code of conduct that has a process for arbitration in the event of a dispute.

  Selecting The Correct Receivables Financing Company

  Hopefully, the points above will demonstrate that there is more to think about than just the pricing when selecting the correct receivables financing company. If you secure the services of a good invoice finance broker, they will help you with the process of analysing what is available and making the best selection for your company.

  By Glenn Blackman