Things To Watch Out For When Looking For Invoice Finance
Touch are one of the UK’s leading independent brokers in the Invoice Finance industry. Being independent means we’re not tied to any one lender, our aim is simple; to help find the facility that’s right for your business.
Through our many years of experience we know the pitfalls some businesses fall into when they are unfamiliar with Invoice Finance. Our guide below explains what some of these pitfalls are:
Minimum Service Fee
This charge is not in addition to the service charge, but if your actual turnover is below what you would expect, a top up charge is made at the end of the relevant period. This is typically quoted annually, quarterly or monthly. However, remember that by charging this monthly, it may seem less, but in practice you could pay more, if turnover is “lumpy” or if your quote is based on a yearly forecast and the business turns over less in the early days.
Setup Fee
A lender will incur it’s greatest costs at the setup stage of the Invoice Finance facility. Some lenders, who don’t insist of a minimum contract length, will charge a higher setup fee to protect themselves against early leavers.
Minimum Contracts
The standard contract length in the Invoice Finance industry is usually 12 months, with a reduced period thereafter. You need to ensure that the lender you go with understands your business and is going to provide you with the support you need. If you realise after 6 months that you’re with the wrong provider and decide to switch you could incur hefty fees. Mitigate against this by talking your options through with an independent source experienced in Factoring and Invoice Discounting.
Refactoring Charge
Some lenders charge a fee if your customers goes beyond the agreed credit period. This reflects the additional work involved in chasing payment and preparing legal action. Be aware that not all lenders charge this fee.
Funding Limits
Some lenders will set a limit on how much you can draw down on your facility. Usually you can raise this amount as your business grows with little difficulty. A common problem is when you grow to quickly and your facility fails to reflect this growth, leaving a strain on cashflow.
Before commencing with an Invoice Finance provider talk through what happens if you hit your funding limit, make sure there is no issue in raising your limit, should you need it, and also be aware of how much notice they need to increase the amount of funds available to you.
Concentration Limits
Some providers are uncomfortable to fund a large concentration of debt into any one customer. In practice many lenders have now removed this. However if you anticipate a high percentage of your business coming from one source, this may preclude you from some such providers.
Personal Guarantees
It’s common in the Invoice Finance industry for lenders to ask for a personal guarantee to support your facility, even for a limited company. It may be the only basis which they are happy to provide you with finance, you need to ensure you understand your implications of such a guarantee and your obligations to conduct the facility in accordance with its terms.
Termination Fees
If you wish to terminate an agreement without the prescribed notice period, the lender will normally be entitled to charge a fee equivalent to the fees you would have paid during the remaining period. This is difficult to calculate accurately, but may be equivalent to minimum service fees (as detailed above).
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