Is invoice finance a stable form of lending?
Sun, 01/11/2009 - 10:57
My colleague and I have recently branched out on our own and started a courier business. It is currently just the two of us, but by the end of 2009 we plan to have at least 4 more staff and turnover somewhere in the region of £250,000.
I know one of the issues we had at my previous employer was that our business customers were so slow at paying invoices. Usually we had to wait anywhere between 40-90 days for payment. Needless to say this had an impact on the amount of cash we had readily available in the business.
It looks like this problem is pretty common, as it doesn’t matter how much I chase invoices, I still have to wait in the region of 50 days for payment.
I have considered taking out a business loan, or overdraft but I think invoice finance could be a better solution for my business.
How long does a typical invoice finance contract last and can the bank pull the funding prematurely? I’m concerned about trying to grow my business only to see a bank pull it’s funding.
Thanks in advance for your help.
Typical contract length is 12 months, although this does vary between lenders and also the nature of your business. For example if the business is considered to be higher risk or new start then the lender might seek either a longer term contract (usually 18-24 months) or in the case of a new start defer the initial costs and load them later in the contractual term in order to assist with the start up costs.
It is fair to say that whilst contracts are worded heavily in the favour of the lender, it is rare, (unless you breech the agreement) for the lender to 'pull the funding'. It is important to note here that with invoice finance the lend is secured against the book debt rather than the balance sheet of the business (as with an overdraft). This will tend to give the lender more comfort (as long as the debt is valid and payable) and hence there is less likelihood of the lender wanting or needing to reduce their exposure.
Simon Carter - Director - Touch Financial