What are the pros and cons of invoice finance? Is invoice financing a good idea? These are questions that I often see posted on social media sites that I subscribe to. Therefore, I will give a balanced view, and point you to some of the material I have already written on the subject.
Is Invoice Financing A Good Idea?
There are many product variables within "invoice financing" that can make a big difference to the pros and cons of the decision. In order to work out whether it is a good idea for your business perhaps start by reading one, or more, of the following articles:
- This article discusses the pros and cons of factoring: Factoring Pros & Cons.
- Another article looks at the case for invoice discounting: Pros and Cons of Invoice Discounting.
- If you are considering a selective facility (where you choose invoices to have funded) or an option for all your invoices, see thisexplanation of the positives and negatives of that choice.
Negative Anecdotal Experiences
I would like to mention that occasionally I see someone comment online that they are looking for finance, asking can anyone recommend a good invoice finance company. The other day I saw a similar post and someone had responded describing their anecdotal negative experience - saying avoid it at all costs. They said they had used it, complained that it had cost a fortune and the factoring company had hounded their customers for payment.
This may well have been one person's experience, but it is not the experience of the majority (98% of users we surveyed told us that they would recommend their provider). Comments based on a narrow experience of one poorly chosen funder are almost worthless, especially when they have selected the wrong facility.
Addressing These Complaints
Addressing these complaints specifically, if the facility is expensive then you have probably chosen the wrong funder. In one study that we conducted, we found a203% differential between the cheapest and most expensive quotes for the same company. Secondly, the issue of "hounding customers". This does not occur with the majority of factoring companies, most take over the credit control function to the complete satisfaction of their client and only enhance their customer relationships.
If you really don't want to risk a third party contacting your customers opt for an invoice discounting facility. That way you can retain the credit control activity in-house and manage all customer contact.
If your business has a really poor quality debtor base, or if you have high levels of returns and disputes with customers, this type of funding may not be your best option. However, in most cases, invoice financing is a great option to improve your cash flow and free up some working capital.
