If you are looking to grow your small business you might be seeking alternative sources of finance but what are the various options out there? We look at two solutions factoring and selective invoice finance and explore what might be the best option for you.
What’s one of the biggest challenges you face as a business owner? While everyone has their own unique obstacles and opportunities to content with, there are a few things that all leaders have in common and that are overcoming sporadic Cashflow as a result of slow-paying customers.
When faced with payment problems and overdue invoices, factoring and invoice discounting often present a solution in which providers offer a medium-term agreement (usually between one to two years) in which time the clients’ invoices are funded.
On the other hand, selective invoice finance was devised as a response to increasing market demand for more flexibility and speed after all; businesses don’t necessarily need or want their whole sales ledger to be funded. Instead, they might want to choose the invoices they need funding depending on their Cashflow requirements at any given time.
What is Invoice Factoring?
This is also referred to as debt factoring and is where a provider buys the debt that is owed to a business by its customers. The provider pays the business a percentage of that debt immediately, and when the debt has been paid in full they send the outstanding balance minus the cost of their service. You might find that whether you pay a discount charge or pay interest and fees differs depending on the provider that you choose.
There is a high level of transparency in this option as the provider deals with a business’s customers directly so it will be clear to them that you are using invoice finance.
The Pros and Cons of Invoice Factoring
If you do want all of your invoices covered, then factoring can offer significant advantage to business owners. However, agreement terms of a one- or two-year period might pose a frustration for people who don’t want to commit that kind of timeframe. Add to this the fact that the notice period on these agreements can be anywhere between three and 12 months.
In addition to a service charge, providers will also usually charge a termination fee if a business owner wants to end the agreement before the originally agreed date. It’s also worth thinking about the relationship you have with your customers is it likely to suffer if they find a third party is chasing payment from them, and does it potentially send out signals that the business is struggling?
Selective Invoice Finance is a Viable Option
Selective invoice finance is all about flexibility meaning the business owner has the opportunity to decide when and how many invoices they want to be funded. In addition, with a selective invoice finance provider like Global Asset Finance Limited and its partners there are no monthly minimum fees and a fast decision can quickly be made once you’ve applied.
At Global Asset Finance Limited we also pride ourselves on being clear when it comes to fees and charges so our clients always know what they will receive and when. Plus, because you select the invoices you want to be funded you don’t need to enter into an ongoing contractual agreement.
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