Managing the costs of an invoice finance facility whilst maximising funding

2nd October 2020

One of the perceptions of an invoice finance facility is that it can be a costly way to fund a business.  This does not have to be the case. Invoice finance can be value for money.

The perception may come from the fact that the cost of invoice finance is broken down into a few charges and a lack of understanding that some of these costs are controllable.

Refactoring Fee

One such charge is the refactoring fee. This fee is charged as a percentage of the gross value of sales invoices over 90 days old every month until the invoices are paid.  The key to reducing the refactoring fee is good credit control.

Our Optimise service provides a monthly report which shows how quickly your debts are being paid.  The report also highlights the fees that are controllable by the business and how you can reduce them.

Another perception is that an invoice finance facility may not provide the funds required. Again, this does not have to be the case.  A well-managed facility can avoid restrictions and provide the cash needed.

What are ‘disapprovals’ ?

Over the course of a facility, the invoice finance provider may have to restrict some funding which means they will not advance against some invoices or they may take back funding already provided. These restrictions are called disapprovals and there can be a few reasons for them. Examples are:

  1. Funding limit disapprovals – in addition to an overall limit on a facility, an individual funding limit is set against each customer and this is usually based on their credit rating. It is therefore important prior to dealing with a new customer that you know that they are creditworthy otherwise sales to this customer may not be financed.
  2. Disputed disapproval – if a customer disputes a debt, the invoice finance company will remove the funding. The solution here is to talk to your customer quickly to resolve differences as soon as possible.  When the customer confirms to the funder that the dispute is no longer active, the money will become available again.
  3. Aged disapprovals – when sales invoices are aged over 90 days old the invoice finance company may take back the funding.

Because of a disapproval, your invoice finance facility may go overdrawn meaning payment against new sales invoices may not be made.  If you are an Optimise client, we would liaise between you and your funder to ensure that your cash flow is not impacted in these circumstances.

If the level of practical support offered by our Optimise service is of interest to you then please visit our website which includes several testimonials from existing clients.

Alternatively, please feel free to contact us at\contact and we will come back to you straightaway.

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