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You've chosen invoice finance because it is fast, short-term, and cheaper than alternatives like unsecured business loans.
Now that you’re certain invoice finance is right for you, searching for the best rate is the next challenge. You come across some great rates and you get a great feeling about some low rates like 1% per month or just 2% per invoice.
So you pick the financier with the lowest quoted rate, get to the offer, and that’s when it hits you: you get that feeling you’ve felt before when something comes with those extras that the sales person didn’t mention.
Fees get mentioned, some of which are flat fees and some of which are percentages. There is a minimum amount of financing you have to do, even if you don’t need the cash.
By this time you’ve invested a phone call, face-to-face meeting, gathered all your documentation and maybe even talked it through with your accountant. At the end you walked away with the financing you needed however, you don’t know the answer to a simple question: how much am I really paying for that financing?
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Why the extras are the confusion
Many traditional financiers want to keep talking about the low headline rate (advertised or talked about) that lured you in, and then when you are invested in the process you suddenly see a lot of numbers that you don’t remember hearing about in your first conversation, but are quickly justified by the financier.
The fees and charges that financier charge are real and are likely justified for operating and managing invoice financing facilities, especially for larger organisations that have large overheads.
Below are some real, full terms from one invoice financiers offer letter that one of our clients left to come to Waddle. Take a look and get familiar with this type of structure and understand the true cost of receiving an offer such as this:
|Type of Financing||Invoice Finance Facility: $100,000|
|Fee Structure||Administration Fee: 1.5% per invoice (charged on the face value of the invoice)
Discount Fee: 0.045% per day (charged on the face value of the invoice)
|Collateral/ Security Monitoring and Operational Fees||$440.00|
|Minimum Administration Fee||$18,000 per annum|
|Recourse Period||90 days|
Instead of a straightforward interest rate or simple fee the costs keep piling up. If you happen to have any low periods of don’t require the financing for a month you will still pay for the funding due to the "Minimum Administration fee" which works kind of like a mobile phone contract. If you want to leave early you need to pay out the balance, hence the lock-in nature of these contracts.
Invoice Financing has moved on
Not all traditional invoice financiers take this contract plus fees approach. Careful research can help you find financiers who will put emphasis on transparency and simple fee structures that seek to simplify this popular financing product and make it easier to understand the true cost to your bottom line.
Business owners need a simple rate, one that they can understand quickly and easily without any catches when it comes time to signing the contract.
"You won't regret your decision to get this set up."
- Blake Hammon *Certified Review
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