Home > Uncategorized > Invoice financing. Some myths

Invoice financing. Some myths

This is a recent piece in the Telegraph covering the supposed pros and cons of invoice financing. Some of  it is not too far wide of the mark although the opinions expressed are a touch generalised and bland. On the other hand there are a statements which are common enough currency and are either a little inaccurate or simply complete myths

I would also add that by  including links to two lenders,  the impression of impartiality is not given. The Telegraph should know better

On factoring we are told this

Potential customers are credit checked, so you’re likely to trade with customers that pay on time.

What nonsense. I think the whole business community is fully aware that the slowest payers are more often than not FTSE 100 giants whos credit ratings will be impeccable. Anyone predicting their cashflow solely on the basis of credit ratings is in for a unpleasant surprise

Profitability will be reduced. With costs, you will lose profit from orders or services that you provide.

This is a very narrow view. The other side of the argument is that the sheer cost in time and worry of managing a fragile cash flow is alleviated. Further more the “loss”in profits is easily countered by the ability to expand the business. In fact the article completely neglects to highlight these crucial benefits.

Expansion is by far the most significant reason my clients use these facilities

the auction process format used by invoice financing is unlikely to appeal, as it provides less certainty over the amount of cash your business will receive.

I fear the writer is not at all in touch with the current market. PTP lending is no longer based around “auction” and hasnt been for some time

For example, if the company can foresee that it’s likely to have a cash shortfall in the future, it may consider applying for an approved business bank overdraft. This would provide the required flexibility, provide certain access to cash, and may be a cheaper alternative.

Completely wrong. Firstly it is perfectly possible for a invoice financing facility to actually be cheaper than an overdraft. I can give examples that were brokered by myself

Moire importantly an overdraft is emphatically not “more flexible” . If your turnover increases then invoice financing grows with the increased demand. This is arguably its best feature. On the other hand try applying for an overdraft extension

The article is well meaning but it is a concern that unwitting misinformation will not be of any benefit to those who require this inceasingly standard form of financing

 

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