5 Warning Signs That You Are Speaking With The Wrong Invoice Finance Company

An invoice finance provider should be your partner. They should be in it for the long term and look for you to prosper. It should be a 'win-win' relationship. Sadly, some are more interested in short term profits. Here are 5 warning signs that you might be speaking to the wrong type of lender:

1) Lengthy contracts. If they are looking to sign you up for 24 or 36 months it is likely that is just for their benefit. There will be a dozen clauses allowing them to terminate at any point, increase pricing at will and reduce the funding as they wish. A lengthy contract simply ties you in and costs you a small fortune when you want to leave. I saw a client recently who had signed up for a 3 year deal that now appears restrictive. The early termination fee was in excess of ￡250,000.

2) Complicated legal agreements. If they are referring you from one document to another and then another it can be hard to understand. There is a good chance that it is overly complicated for a reason.

3) Contracts that auto renew or make it hard for you to terminate. If you can only terminate on the anniversary between 11pm and midnight and only if there is a full moon and you are wearing purple pants, that should ring alarm bells.

4) If they are quoting a high minimum base rate, why? If the base rate falls, which is predicted, they are simply enhancing their margins. I saw a discounting fee quoted at 3% over bank of England base rate subject to a minimum base rate of 4.25%. If rates fall 2% then the client will be paying a margin of 5% rather than 3%. We may have got used to rising rates but they are predicted to fall and potentially quite rapidly. If they are pulling these tricks, what else are they up to?

5) Badly structured minimum fees. If you turnover ￡1m and you are quoted a service fee of 0.5% subject to a minimum fee of ￡1,000 p.m., in actual fact you are paying a service fee of 1.2%. The 0.5% is a total red herring and is misleading.

This list is not exhaustive. If you are speaking with a lender and you are finding them a bit tricky, this is likely a good indication of how they will behave going forward. Take advice, get recommendations.