During the course of this week I held a lengthy conversation with the proprietor of a business, established some years and with annual sales just short of £0.5m. When the conversation moved to factoring the businessman was very against, citing the cost as the main issue.
In itself this isnt an unusual objection but in this case the businessman was of the view that the cost was the entire balance of funds not initially advanced. In other words his perception was that if an invoice financier advanced 80% against outstanding sales invoices the cost was the balancing 20%.
Whilst this is anecdotal in the extreme it’s worrying that any business owner should have this as their perception. In this case the individual had previously spoken to his bankers about factoring so clearly his understanding on costs had never been properly addressed and corrected.
Factoring and invoice finance in general is subject to many misconceptions of which cost is one. In part this is attributable to, and compounded by, some less than transparent charging inflicted on clients by invoice finance companies.
In general, the benefits afforded by any type of invoice finance can offset the charges, whether the benefit is a demonstrable increase in sales brought about by the access to finance or the ability to utlise the extra cash through a prudent supplier payment policy.
Charges need close scrutiny and there are instances where a businesses margins can be eaten into dramatically and with potentially business ending consequences. It is absolutely critical to take independent advice and have the charges, both the headline figures quoted and the more opaque ones, explained.
We speak regularly to businesses concerned about charges and can often find ways of saving considerable sums. So if you are an existing user of invoice finance feel free to get in touch, if nothing else you will be able to benchmark the rates you currently pay against those the market has to offer. And if you are a prospective user again please get in touch to ensure the proposed facility is right for your business.