Business owners embrace the idea of invoice finance until the “brain freeze” moment hits as the nuts and bolts of finance contracts are revealed.
Businesses are thrust into unsuitable, often mismatched finance products thanks to an inability to see what “better” looks like, thanks to a confusing business financing marketplace evolved over decades. When seeking finance, it’s that comfortable warm feeling to go with what appears to be the status quo.
“Industry standard” doesn’t cut it anymore. Peering over the horizon reveals surprisingly modern options that can help prevent regret when partnering with funding suppliers.
Four real world questions to ponder before you renew funding lines:
What's the real cost?
Beware of the low service charge financiers. It often masks a financial reality that hide’s the true cost to your bottom line.
- Is the amount you can drawdown against your invoices restricted?
- Are charges based on “face-value” of invoices or funds I borrow?
- Is there a minimum contract fee charged whether I utilise the funds or not?
- Does it limit the amount you can fund through a single client, regardless of them being your biggest cash generator?
- Does the lenders system add-on extra workload to my business?
- Will you have to pay a renewal fee to extend your contract?
- Do you need to pay to increase your funding?
What improvements could you make?
Consider all the setbacks and layers of hidden administration that were hatched from a difficulty with your financier, what’s the likelihood that you would have grown faster, reduced stress and costs if you found the right option?
If you could access all the funds from your invoices immediately, think of the financial safety net you’d have to expand, develop, and free up time to manage growth.
Has the current lender created an extra job because of the painful work load, uploading invoices, paperwork, or delayed error prone reconciliations? Could you be making more money if you didn’t need to dedicate time to admin? Could a staff member work on the business rather than managing the financiers demands?
Are the communications your financier has with your clients damaging your business relationships?
Is there any alternative?
From sniffing out missing details from a supply contract to pinpointing tell-tale signs from dodgy dealing, business owners often pride themselves on their ability to hunt down a good deal.
Yet, when it comes to their own operation, one of the most important decisions they’ll make is finance. Renewing contracts year on year without proper exploration to cut costs and improve each time is a trait that plagues business profitability.
You wouldn’t extend credit to a new customer without knowing the market so before you commit to a lengthy contract, see how it measures up. Get some quotes and benchmark it each year against the competition.
Are there costs involved to leave?
Terms of trade, supply agreements, employee contracts are your world. Financiers are another supplier to your business and you need to review the terms before the door gets bolted shut once you sign up. Define the exit terms, disguised lock-ins or costs to break contracts.
They might forget to mention that there’s a three-month notice period that needs to be given. These notice periods can extend your perceived contract lengths and prevent you from moving to healthier options.
Deciding to stay or when choosing your next financier, “It works” doesn’t cut it in a competitive marketplace. Before you tie yourself into a sticky contract do what you do best.