Choosing The Right Lender For Your Receivables Financing
Receivables financing is offered by a variety of lenders including a few of the big 4 banks, 2nd tier banks, large specialist invoice finance providers and specialist lenders who focus on providing loan facilities to business owners with bad credit.
Many of these groups fund each other with major banks having funding lines that support some invoice finance specialists and in turn those invoice finance lenders supply the credit lines to the smaller lenders who focus on bad credit.
This layering of funding means there is considerable difference between the cost of receivables finance, as every lender will build in their costs and profit margin along the way. For this reason the cheapest receivables financing is usually supplied by the banks, then the invoice finance lenders and the most expensive funding is from the lenders who focus on subprime lending.
Banks and the leading invoice finance providers provide fixed monthly fees as opposed to the standard service fees that are linked to turnover that most receivables financiers charge. The benefit of the fixed model is your finance costs don’t rise if you’re business turns over more money. A good way to think of how this works is like the line fee on an overdraft, which is linked to the size of the limit. It’s our expectation that an increasing number of business owners will choose a line of credit with this fee structure once they understand how it can lower the cost of funding in a growing business.
Like most commercial lending the highest standards are expected from the banks and lenders that offer the best value. Banks will be seeking businesses that have an established history of profitable trading, no outstanding tax debt and invoices that are supported by good processes that avoid disputes. Invoice finance lenders will welcome businesses with outstanding tax debt provided directors have a clean credit history and are of a good character.
