3 Invoice Finance Mistakes You Don’t Want to Make
- Invoice finance mistakes often lead to late payments, causing SMEs pain and further challenges.
This article was written by James Sinclair of Trade Finance Global.
Invoice finance has seen a boom in recent months. Invoice finance encompasses factoring and invoice discounting, which businesses can use to release working capital tied up in invoices which could take up to 90 days to receive.
Recent news from the Asset Based Finance Association reported a 5% increase in invoice financing in the first half of 2016, in comparison to 2015, exceeding £20.3 billion this year, an early indication that Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term fears aren't affecting commercial finance.
There are certain invoice finance mistakes that often cause SMEs pain and further challenges. If avoided, invoice finance could be a suitable tool for easing cash flow and helping minimize risks associated with late Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term.
1. Not reading the Ts and Cs, and misunderstanding the charge structure
Ever clicked 'I agree' without actually reading the terms and conditions? For invoice finance, this isn't a mistake that you want to make. If the fine clauses in the fine print are not looked over with a fine tooth comb, you could be stung with charges that you might not have been aware of.
One common misconception with charges are service charges and discount rate. The service charge, like the name, is a fee for borrowing money, normally based on the total value of the invoice, whereas the discount rate is the daily interest rate charged on what is borrowed, which goes down the faster you pay back.
Some less scrupulous banks might add on pesky fees for credit checks and early repayment, so watch out.
2. Getting the details on the invoice wrong
Companies that are new to invoice factoring might forget to make sure their clients' direct invoices are to the factoring company (in the case of invoice factoring), thereby possibly causing 'late payment' factor and incurring fees.
Further to this, assuming that the customers have received, understood and will pay the invoice once it has been 'sent' from your inbox is risky; following up, making sure the payment terms are correct, and the details (theirs and yours) are too will help prevent any unwanted hiccups in the invoicing process.
3. Forgetting about FX movements
Although invoice finance can provide some cashflow certainties in a business, external factors such as volatile exchange rates, especially for those acquiring goods or exporting overseas, turbulent FX markets can quickly eat into margins.
Factoring and foreign exchange volatility management do actually come into play, and it's often handy to talk to a currency broker to discuss requirements and consider forwards or contracts to protect your business revenue.
This article was written by James Sinclair of Trade Finance Global.
Invoice finance has seen a boom in recent months. Invoice finance encompasses factoring and invoice discounting, which businesses can use to release working capital tied up in invoices which could take up to 90 days to receive.
Recent news from the Asset Based Finance Association reported a 5% increase in invoice financing in the first half of 2016, in comparison to 2015, exceeding £20.3 billion this year, an early indication that Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term fears aren't affecting commercial finance.
There are certain invoice finance mistakes that often cause SMEs pain and further challenges. If avoided, invoice finance could be a suitable tool for easing cash flow and helping minimize risks associated with late Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term.
1. Not reading the Ts and Cs, and misunderstanding the charge structure
Ever clicked 'I agree' without actually reading the terms and conditions? For invoice finance, this isn't a mistake that you want to make. If the fine clauses in the fine print are not looked over with a fine tooth comb, you could be stung with charges that you might not have been aware of.
One common misconception with charges are service charges and discount rate. The service charge, like the name, is a fee for borrowing money, normally based on the total value of the invoice, whereas the discount rate is the daily interest rate charged on what is borrowed, which goes down the faster you pay back.
Some less scrupulous banks might add on pesky fees for credit checks and early repayment, so watch out.
2. Getting the details on the invoice wrong
Companies that are new to invoice factoring might forget to make sure their clients' direct invoices are to the factoring company (in the case of invoice factoring), thereby possibly causing 'late payment' factor and incurring fees.
Further to this, assuming that the customers have received, understood and will pay the invoice once it has been 'sent' from your inbox is risky; following up, making sure the payment terms are correct, and the details (theirs and yours) are too will help prevent any unwanted hiccups in the invoicing process.
3. Forgetting about FX movements
Although invoice finance can provide some cashflow certainties in a business, external factors such as volatile exchange rates, especially for those acquiring goods or exporting overseas, turbulent FX markets can quickly eat into margins.
Factoring and foreign exchange volatility management do actually come into play, and it's often handy to talk to a currency broker to discuss requirements and consider forwards or contracts to protect your business revenue.