The Invoice Finance industry continues to enjoy considerable growth as many SMEs recognise the benefits of using this flexible form of funding. Although it is now a much more accepted method of funding growth and working capital, negative connotations persist with many still viewing it as a last resort lending option. There are many myths and misconceptions that continue to affect the industry. Here are some of the most common myths.
1. 'Invoice Finance is just for struggling businesses and is funding of last resort'
A key part of the negative feeling around employing Invoice Finance is around the misconception it is used only by distressed companies who have cashflow problems. In fact, invoice finance is being used as a first choice growth product to support highly successful companies with their expansion plans. It is now widely acknowledged as a superior working capital solution for growing businesses, not failing ones and has the scope to increase in line with the rise in business sales. It also provides Bad Debt Protection which covers your company against struggling businesses so that customer insolvency does not affect your cash flow.
2. 'My business is growing and isn’t in trouble, I don’t need Invoice Finance'
Invoice Finance provides liquidity and the confidence to respond to new growth opportunities and realise your ambitions because it provides access to working capital. More businesses are seeing that an Invoice Finance facility could help to increase their working capital or smooth their cashflow. A company’s debtor book is fast becoming its biggest asset, and the nearest to cash goods and services already sold and waiting for payment.
3. 'My customers will think I am in trouble if I use Invoice Finance'
The reality is that Invoice Finance is common practice among successful businesses seeking to bridge the gap between paying suppliers and being paid by customers. Big companies understand that cash flow is critical not only for them, but also for their supply chain. So instead of, ‘What will my customers think?’ why not think about ‘How this will help my customers,’ because more and more are realising how Invoice Finance contributes to the future success of your business and a healthy supply chain. It is no longer an uncommon practice and is becoming a widely accepted form of finance.
4. 'Invoice Finance is expensive and is buried in hidden charges'
Invoice Finance is a fast and flexible means of accessing cash tied up in unpaid invoices and although there are fees involved, we are very open and communicate clearly the cost involved. It is a competitive and affordable solution and unlike bank loans for example you only pay for the funds you need, not for the full amount made available to you. This works because you agree an advance on the percentage of your invoice that you need immediately with the balance. It can also be less costly than giving away equity to secure funding or passing up a sales opportunity because you did not have the required liquidity. The cash flow benefits of using Invoice Finance are great, one of which is the speed with which funds are released within 24 hours.
5. 'Invoice Finance damages your relationship with customers'
Invoice Finance is designed to enhance your business and customer relationships rather than hinder them because you are increasing your financial capacity. It helps you to employ more staff, increase sales activity, move into larger premises and focus on research and development. All these things will improve your service offering and capabilities so should be viewed as a positive in the eyes of your customers.
6. 'Invoice Finance companies will hound my customers for payment and will interfere with my business'
Invoice Finance helps to free up working capital, but the control of your business is still and always will be, up to you. It involves assigning your customer sales invoices to a finance provider like ourselves, that can typically advance up to 95% of the sales value. The Invoice Finance provider then collects the payments less their fee and at Bibby Financial Services we have a dedicated team who work in a professional and sensitive manner, acting as an extension of your team.
7. 'Invoice Finance involves too much work and is difficult to apply for and manage effectively'
Invoice Finance is a great solution for companies seeking a cash injection to support day-to-day trading needs and growth because it unlocks working capital from unpaid invoices. It is flexible and simple. There is no escaping there is admin involved but this is outweighed by the speed in which the funding is provided and how this can help businesses looking to grow and need finance to act quickly on new contract wins or acquisition opportunities for example. Our team is also on hand to guide you through the process and gain access to our Client Online service where you can manage your account online 24 hours a day, seven days a week.
Find out more
If you have any questions about Invoice Finance, then please get in touch. We will be happy to provide you with the information you need to make the best financial decisions for your business.