What to Consider When Comparing Invoice Financing Solutions
Whilst invoice finances won’t be right for everyone, what’s clear is that invoice financing can be a simple, transparent solution to funding your business by activating the cash that is tied up in your unpaid invoices, rather than extending your borrowing.
New research from Barclays shows that over 26 per cent of UK businesses report that late payments from customers have become more frequent as the cost of living crisis starts to impact SMEs. This highlights the importance of ensuring your business has adequate business cash flow to cover costs.
Finding the right invoice financing solution for your business is crucial, as it is important that the provider understands your business, and that you fully understand the contract terms to ensure that issues do not arise in the future. Below, we outline some of the considerations to bear in mind when exploring invoice financing for your business.
6 key considerations for comparing invoice financing solutions
Considering the cost, complexity and risk attached to extending your company borrowings, invoice finance can be a very strong option for optimising cash flow. However, finding the right provider can be difficult. Here are six things to take into account when considering different invoice financing solutions for your business.
1. What should the invoice financing solution solution really cost?
Can the invoice finance provider give you an honest assessment of what the actual, per invoice funded, cost will be and present it in a way that’s simple and clear to understand? At Hydr, we believe that invoice financing can be a really powerful tool, but only when you know exactly where you stand. Look out for fees ‘starting from’ or fees as scaled percentages with small print outlining the extras and conditions. If it’s complicated and difficult to understand, it could be a red flag that the ‘quote’ you receive is unlikely to be what you will actually end up paying to fund your invoices.
Are you having to pay listing fees on top of charges for each invoice?What additional optional extras are you being invited to consider?
At Hydr, the fee we quote is the fee you pay – always. You will never be charged any hidden extras, our fees are fixed and fairly priced. Take a look at our handy invoice factoring calculator to learn more.
2. What percentage of the invoice value is paid upfront?
Some invoice financing providers will fund 70-90% up front with the remaining balance topped up when the invoice is paid by the debtor. This means you still have to wait out the payment terms to receive the full invoice amount, and the longer your debtor takes to pay, the more you will be charged for that particular invoice, which means that the amount you actually receive shrinks day by day.
For Hydr customers, this just isn’t good enough. We will always pay 100% of the value of your invoice within 24 hours. There’s no catch, no smoke and mirrors. Just full payment, minus our fairly priced, fixed fee, in your bank account within 24 hours. We don’t like the complexity of working out the remaining balance any more than you like waiting for it.
3. Will the invoice financing solution commit your business to a fixed-term contract with a monthly subscription?
One of the key benefits of selective invoice financing – done well – is that flexible invoice financing solutions can optimise your cash flow. It’s therefore important to look out for invoice financing providers who will demand a certain time commitment or volume of invoices from you as this might not fit your needs.
Think very carefully before you consider a whole turnover agreement; these take time to apply for, can be quite costly and you will be locked in to a contract for at least a year, if not longer. That’s a fixed cost every month, just to have the facility. Are you really going to use all of it?
At Hydr, we do not lock you into lengthy agreements, which enables you to switch our financing on or off as you need. You can fund as many or as few invoices as you like.
4. How long will onboarding take and what paperwork will the invoice financing solution provider ask you to provide?
Hefty admin requirements and paperwork have put a lot of businesses off even exploring invoice financing as an option, so make sure you look at what’s involved in onboarding with the provider. The good news is that technology has revolutionised the way we do business and its impact on invoice financing is a really positive one.
Our technology and class-leading Xero integration mean that the complexity that once existed isn’t there anymore. Onboarding takes 15 minutes and is quick and seamless, and because our fees are fixed, it’s transparent too. You do not need to submit any additional paperwork, just go online and follow the onboarding steps.
We offer a complete technology integration; once onboarded you simply raise your invoices within your cloud accounting software as you always do. We then fund them and park them in the right place within your digital accounts. Then, when we are paid, we enable a seamless, effortless reconciliation. You can always log in to our customer dashboard, but just by logging into your cloud accounting , you’ll always be able to see what is going on.
5. What charges and debentures will the invoice financing solution take over your business?
Some invoice financing providers will insist they take a charge on your business and perhaps ask you to commit to a personal guarantee. Consider carefully the security being sought by the finance provider – debentures and guarantees can be onerous relative to the funding sought.
At Hydr, we do not require personal guarantees, charges or debentures. Our proprietary platform and algorithm paired with our class-leading cloud accounting integration means we can tell you, in real-time, whether we are able to fund your invoice or not. If we can, we don’t ask for anything else, just a fixed and transparent fee for 100% payment of your invoice.
Put simply, we are reinventing how invoice financing is done.
6. Is it a disclosed or undisclosed product, and if so, are there genuine experts managing your interests?
A disclosed product means that your customer is made aware of you working with an invoice financing solution provider. In times gone by, a stigma has been attached to invoice financing because of how the collections process was managed by some disclosed providers. At Hydr, we are working hard to change this.
As a disclosed product, we want your customers to know that we are working together. We have a team of experts in this space and take pride in building professional, light touch relationships with your customers. We act as a genuine extension of your finance team and you should view us as such. In fact, informing your customer that payments are being managed by a trusted third party will positively change the dynamic of your relationship with them and, over time, should improve their payment behaviour.
As you can see, there are many considerations when choosing the right invoice financing solution for your business. From unforeseen charges to onboarding paperwork requirements, it is important to fully understand the terms and conditions of different invoice financing solutions options and if they will be the best solution for your business. At Hydr, we aim to make invoice financing simple for your business, with full transparency at the heart of what we do.