We spoke with Bernadine Geary, Director, Cashflow Finance at Fundamental Business Finance, who provided some insights to the...
What is confidential invoice finance & what will my customers think?
Modern cash flow finance for cloud enabled SMEsTeam Waddle
Business owners new to the modern world of invoice finance often ask “what will my customers think?”
First up, what is invoice finance?
Modern invoice financing options like Waddle have been created to mimic the simplicity of bank overdrafts.
SEE ALSO: Invoice Finance: 3 Cold Hard Facts Why SME’s Embrace The Benefits
Lenders provide a line of credit against your on-going outstanding receivables (invoice) balance. For example, if you invoice $100,000 per month, the lender will grant you a credit line of $80,000 tied directly to the value of your nominated customers invoices. You can drawdown funds and repay as often as you like, only paying for what you use.
As invoices are repaid your credit limit adjusts just like a bank overdraft, you can redraw on your limit. This allows you to draw on funds tied up in unpaid invoices on a daily or weekly basis instead of waiting for customers to pay 30-90 days later.
Secret or “confidential invoice finance facilities” are replacing traditional invoice factoring offerings that are plagued with administration and disruption to customer relationships. The rise of cloud accounting has digitised the invoicing process and lenders like Waddle have built specific lending products to cater for this.
What’s the basic level of disclosure To my customers
There are three (3) main differences between a confidential and a disclosed traditional invoice factoring facility.
Firstly, in a disclosed situation, upon setting up your account factoring providers will send out letters to your customer base advising them that there is a change of banking details and that a financing arrangement is about to take place to help grow your business.
Secondly, on each of your invoices the lender will require what’s called an “notice of assignment” this is a simple two-line notice that states the invoices are assigned to the finance company and to pay into the new bank account details provided.
Lenders work closely with their clients when advising of the change in details and almost 100% of the time they only ever speak with the accounts payable departments of your customers.
The third difference is the factoring company will contact your customers on your behalf to check that invoices have gotten to the right place and to check when they are likely to be paid. Lenders aren’t debt collectors however, collection style calls are still performed. This process is called “verification” or “asset checking”.
The main reason they perform this practice is for the simple fact that invoices are their only security, each invoice is an asset they have lent against and from time to time they need to ensure they still exist.
If you qualify for a confidential facility, almost 100% of the above three points will not be performed, most lenders still require you to update bank details to an account controlled by the lender which is held in your name.
This allows the lender to control the repayment of funds and maintain an accurate funding limit to your business without having to chase you for payments every week.
Who offers confidential invoice financing in Australia?
Throughout Australia, traditional banks and some non-bank lenders do offer confidential arrangements however, they still require manual processes that do not integrate with your cloud accounting packages.
In recent years lenders like Waddle have fundamentally changed the way invoice financing is offered. Modern cloud based funding takes away all of the administration burden on your back office and automates the lending process.
The only catch is that you need to be a “cloud enabled” business, meaning, you’ll need to be using Xero, MYOB or QuickBooks Online.