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Waddle

What is confidential invoice finance and how do I get it?

No contact with customers - revolving line of credit - integrates with cloud accounting software

Team WaddleTeam Waddle

One of the most common questions asked by business owners that are new to the world of invoice finance and alternative lending is “what will my customers think?”

What is invoice finance?

Lenders provide a line of credit against your on-going outstanding receivables (invoice) balance. For example, you invoice $100,000 per month. A lender will lend you $80,000 of this each month. Each time invoices are repaid your credit limit adjusts just like a bank overdraft and you can redraw on your limit. This allows you to draw on funds tied up in unpaid invoices as soon as you raise invoices on a daily or weekly basis instead of waiting for customers to pay 30-90 days later.
Revolving line of credit
New invoice financing options like Waddle have been created to feel just like an overdraft. Drawdown funds and repay as often as you like, only paying for what you use.

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.

Confidential invoice finance in the past has been only reserved for businesses that have an established track record, with evidence of sound trading history, invoice collections processes and have a streamlined supply chain that includes receiving purchase orders, invoicing customers and receiving proof of delivery paperwork that can be produced.

Effectively the financier is looking to offer these facilities to business owners that can demonstrate that they can look after their back office correctly without the need for any collections assistance from a third party. Data from a business owners cloud accounting package allows the lender to understand in a snapshot just how well they invoice and get paid.

Once last thing worth mentioning is lenders are very cautious of businesses that offer products on “sale or return”, “contra arrangement” or have huge marketing discounts or deductions that are common when selling to large retailers like Woolworths. This is not to say they still won’t finance you however, you will likely see a reduction against these customers/debtors to make allowances for what will get paid in the future.

What’s The Basic Level of Disclosure To My Customers

There are three (3) main differences between a confidential and a disclosed invoice factoring facility. Firstly, in a disclosed situation, upon setting up your account lenders 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 “assignment notice” 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 finance company may 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 and are careful not to disrupt your relationships. 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, however 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. Over the past two years lenders like Waddle have designed products that take away all of the administration burden on your back office, automate the lending process and remove any contact with your customers.

The only catch is that you need to be a “cloud enabled” business, meaning, you’ll need to be using cloud accounting.


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