Invoice trading is a flexible new alternative to traditional factoring or discounting. The hidden fees and lack of flexibility (being forced to sell all your invoices even if you don’t want to) are the main disadvantages of factoring. Be aware that factoring has historically been known for hidden extra fees, which often aren’t clear as they are rarely on your contract just referenced as information which can be found in policy documents. Factoring is a long term arrangement and can be very expensive to walk away. Some providers tie you in for up to 24 months, requiring 6 months’ notice and exit fees if you wish to leave early. If there is any issue with debt collection it could jeopardise your relationship with your customer. Some businesses like the fact that the responsibility lies with the factoring company, however, this involves your customers being contacted directly and how that relationship is managed is out of your hands. The provider will also interfere in your customer relationship with responsibility for collecting and chasing payments directly from your customer. Because of concentration limits, you will only be advanced between 50% and 80% of the invoice. Alternatively, if you want to reduce your level of funding and costs, you will also be locked into a fixed level of funding that you are paying for but may not actually need. You will be locked into a facility that restricts the available funding as your business grows. Invoice factoring involves a third party provider managing your entire sales ledger. Here we focus on invoice factoring and invoice trading – two options which commonly cause confusion but have a huge impact on the cash flow of your business. Under the umbrella of invoice finance there are several options, ranging from discounting to factoring to trading. Understanding which type is right for you and what the differences are between them isn’t always easy. Within the invoice finance space there are so many different options.
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