Choosing an invoice finance provider

What to base your decision on

Late payment is a problem that affects virtually every business in the UK. It is an unwelcome reality that many customers will put off paying their invoices until the very last moment, potentially leading to cashflow problems for your business.

Invoice financing allows businesses to ease their cashflow by unlocking value in unpaid invoices. This service can be vital, particularly at a time when cashflow concerns are becoming ever more widespread. However, in order to derive the maximum potential benefit from this tool, it is important that you choose the right invoice finance provider from the outset – particularly as the majority will expect you to commit for a minimum of twelve months.

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One of the most important aspects to consider is the proportion of each invoice that will be advanced by the finance company. Many providers will pay 90% of the value of each invoice up front, with the remaining amount payable upon collection. However, the value of the advance payment will depend on the provider’s policies and the status of your invoices and customers.

You should also consider the charges associated with each provider. In general, invoice finance involves two separate costs; the first is a regular service fee to maintain your ledger on a day-to-day basis, while the second is an interest charge made against the value of each invoice. These charges will vary between providers, and it is important that you understand exactly how much you will be charged before committing to a specific provider. Costs will also be determined by the level of service offered by the invoice finance provider; some providers will manage your sales ledger completely, while others will offer a more basic service. Any charges should be commensurate with the level of service received.

Your choice of provider will be determined in great part by the nature of your business. Most providers require potential clients to achieve a minimum turnover, and some will place restrictions on the proportion of invoices raised against either businesses or private customers.

Crucially, some providers will also refuse to deal with businesses that rely heavily (or, indeed, entirely) on a small number of customers for their income. Many providers will refuse to deal with large invoices raised against customers with whom your business has no prior trading history, while others will place a blanket limit on the value of qualifying invoices. If you deal with a small number of clients, it is important that you find an invoice finance provider that is sensitive to your needs and flexible in their terms.

You can expect to work closely with your invoice finance provider and, as such, it is important that you spend some time ensuring that you make the right choice. With the right provider, however, this initial investment can quickly pay dividends and help your business to achieve its potential.

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  1. The easiest way though is to use the services of a specialist invoice broker as we know the market and know who has the biggest appetite for each different type of business and we can also leverage better rates due to our buying power