SMEs have been hampered by slow paying customers for decades. This problem has seemingly worsened over recent years. Traditional financing methods such as Factoring and Invoice Discounting have been used by those businesses experiencing payment problems for many years.
These products are generally subject to a one or two year agreement and all the clients’ invoices will need to be funded.
Selective Invoice Finance is a new product that has been created out of market demand for increased flexibility from businesses that don’t need their whole sales ledger funding. This new product allows businesses to finance one or more invoices of their choice at a time of their choosing to fit their particular cash flow needs.
Advantages of Selective Invoice Finance
- Flexible Finance: The client decides which invoices are to be funded. The client decides when the invoice(s) are to be funded.
- Ongoing Charges: There are no monthly minimum fees.
- Fast: An indicative decision can invariably be given within the hour.
- Transparent Finance: There are no additional fees or disbursement charges and no termination fees.
- No Ongoing Contractual Commitment: The service can be used as and when it is required by the client.
- Personal service: A relationship manager works with the client on each transaction.
Disadvantages of Selective Invoice Finance
- Whole ledger facilities: Selective Invoice Finance is often not suitable for funding whole ledger facilities. This is particularly the case when the ledger is made up of multiple low value invoices. If a ledger is made up of say up to 6 clients with one higher value invoice each per month it may well make commercial sense to use Selective Invoice Finance for the increased flexibility it provides.
Advantages of Factoring
- Whole ledger: These facilities will cover all of the client’s invoices.
Disadvantages of Factoring
- Contractual tie in: Factoring agreements are often for a period of between 12 and 24 months.
- Notice period: The agreement will invariably include a notice period of anywhere between 3 and 12 months.
- Costs: There is a service charge, a discount charge and a range of other charges (disbursements) for additional services required by the client. There are also termination fees if the client wishes to leave before the end of their agreement.
- Credit control: Factoring facilities will include handing over the client’s credit control function to the Factor. This can be an inconsistent service and is often not well received by debtors being chased for payment by a third party.