Choosing an invoice finance provider is sometimes a difficult process. The fact is that each factor essentially does the same thing. They all lend money against invoices, but it’s the HOW that really sets them apart.
So you chose your invoice factoring company because they promised to deliver a certain level of service & pricing structure and perhaps you liked their approach over others, but are they still delivering upon these promises?
1) Disbursements/Additional Fees
Your invoice finance company promised at the outset that there were very little additional fees apart from the service and discount charges, but 2 years down the line you are now being charged for same day payments, customer credit checks and to increase your funding limit as your grow.
These charges all add up and many factors do offer excellent headline rates to attract new clients, but additional charges are sometimes not evident.
Pricing should be transparent and simple to understand.
2) Concentration/Spread of Your Customers
Most invoice finance and factoring companies will have restrictions upon the level at which they will fund debtors that take up a certain % of your overall ledger. There are many businesses that work with a single customer or have customers with larger outstanding balances than others, therefore the standard 20% spread does not work.
If the customer you are dealing with is well-rated and you have a Bad Debt Protection policy in place, your factor should have no issue with funding a single debtor at 100%.
However some factors do, and a change in ‘internal policy’ can often mean that what they once funded, they no longer can.
3) Monthly Minimum Fees
Minimum fees are charged by the invoice finance company to ensure that they don’t provide a service and end up making a loss. If you have a turnover which is predictable then minimum fees shouldn’t impact your business.
However, minimum fees can be detrimental if you have a low turnover, a seasonal turnover or one which is unpredictable. You can ask your factoring company to structure minimum fees so that they are taken annually rather than monthly. Some invoice finance companies don’t charge minimum fees at all, so it is worth reviewing your current arrangement if it is not quite what you had hoped.
4) Client Managers
Some of the bigger invoice finance companies have large departments that deal with your facility with varying levels of authority. This can cause its own problems. If you don’t have access to a day-to-day decision maker who manages your account, any decisions that need to be made are often slow and can have an impact upon your business, such as increasing customer credit limits or funding levels.
5) Suspense Accounts/Reconciliations
Some invoice finance companies have a large number of clients and therefore receive thousands of payments each day, which makes reconciling these and allocating them to the right debtor account troublesome. Sometimes dealing with a boutique invoice finance company means that you receive a more personal approach where time is available to ensure that errors are minimalised.
If you are looking to review your current facility and would like an honest and transparent approach, please contact us here. Transferring is easier than you think and if some of the above points are beginning to affect your business, perhaps it is time to look at an alternative.