The invoice finance mistake made by those with 1 big debtor (and how to overcome it).

Growing pains can be eased.

In a perfect business world all customers would pay COD, there’d be no late payments and invoice finance wouldn’t be needed.

But that’s not reality for many businesses – particularly those winning their first big contract.

How does invoice finance work?

Invoice finance can bring revenue recognition forward – this means up to 85% of your invoice value can be available to you the day you write the invoice.

Many business owners look for this support when they win their first big contract and might have the majority of their turnover coming from just one big debtor.

But many invoice finance providers want all debtors going through their facilities.

As an answer to this, some invoice finance providers offer invoice finance on just one debtor and allow you to exclude the others.

This can work for your business but there’s a but…

The problem with single debtor invoice finance

They tend to be more costly, with more fees, more penalties and the lender’s debtor insurance can be mandatory.

If you’re being charged an invoice fee, an interest rate, maybe a service fee and the lender insists you take out their insurance on an ‘A class’ debtor you could find your paying as much as 40% just on that one debtor.

Maybe more.

Think of it like a ‘tax’ for the flexibility of keeping the other debtors out of your facility.

This might not be the best approach for your business.

A better way of managing invoice finance

A better approach could be to consider an invoice finance facility that’s a temporary solution to help you through this period of growth.

You could find a lender whose facility covers all debtors but at an effective cost that’s less than half than some of the single debtor finance facilities on the market.

If most of your revenue is coming from the one big debtor anyway, covering all debtors can end up being a far more effective solution.

An effective cost that’s less than half over all debtors could be the right solution instead of an expensive invoice finance facility over just one very big debtor.

Then as business grows you reassess and make adjustments.

Adjustments that might look like retiring the invoice finance facility and relying instead on an overdraft.

Invoice finance doesn’t have to be the forever solution to your business credit – it can be the right solution if you’re in a cash flow bind now.

To work out the best solution for your business request a call HERE.

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