Is Invoice Finance Expensive?
Ian Hepworth
??Invoice Discounting | Trade Finance | Asset Finance | Business Finance | Acquisition Funding | LinkedIn Top Voice | 22,000 Followers
“Thanks for the finance offer but my accountant says that it looks expensive” I hear this all the time. Expensive compared to what? What is their suggested alternative?
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A lot of what we do is invoice finance related. If we have quoted a business it will have be done having taken a market comparison and based on facilities that are structured properly and will work.
Is it cheap? No.
Will it help you grow your business and achieve more profits? Very probably if you are using it for the right reasons.
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It is all well and good saying “It is too expensive, don’t take it” but at least offer a comparison or an alternative. Ideally, the advice should include doing?forecasts of what can be achieved with a facility and without a facility. Is it viable? Does the facility allow more profits to be made even after the additional funding costs? What are the risks to the business?
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“Invoice Finance is more expensive than an overdraft”. Yes it is. Is an overdraft available to you? Probably not. Despite numerous invoice finance providers and brokers trying to claim that invoice finance is not more expensive than an overdraft, it is. No doubt. However, for B2B businesses invoice finance is more readily available and is more flexible when it comes to growth.
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If you are bored, can't sleep or have a dark side you may wish to read up on why overdrafts are not as readily available as they once were to businesses. Simply search for "Brumark Case" and/or "Spectrum Plus v Natwest". Reading that will make my newsletters seem positively thrilling.
So is invoice finance a good solution for businesses despite the cost??
Recently, I was approached by a business that has received 3 purchase orders from a major supermarket for €11m. Their margins are good but they need cash flow to pay a supplier. The solution is likely to look expensive to some. However, it will allow them to take advantage of a great opportunity and even after finance costs it will be very profitable. In many ways, the cost is almost irrelevant.
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If you would like to know what “expensive” but competitive?funding solutions?are out there to help your business make more profit please get in touch.
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Disclaimer: This is in no way aimed at all accountants or any individual. Just an attempt to be slightly edgy and avant-garde. ??
‘Cornerman’ for owners of growing SME’s where support is needed with funding, bank or investor relationships. Also, mentor for business owners with an expanding role which breaches comfort zones
2 年Totally agree Ian. I always look upon Invoice Discounting costs as another 'Cost of Sale'. Once you know the impact on your gross margin it is straightforward to establish what level of additional sales you need to 'breakeven' on it. Most of the time businesses would be confident that with the funding (and with less negative activity juggling cashflow etc) they can grow sales beyond that level
Director at Liquid Link
2 年Great piece Ian. Some accountants have a great understanding of this but others sadly are lacking
Credit Insurance & Surety advice
2 年a good read ian
Fleet Transition Director at Lombard Vehicle Solutions (NatWest Group) | Vehicle Funding | EV Transition | Contract Hire | Contract Purchase
2 年Excellent article. Always said that any form of borrowing is spending money to make money.
I aid boards and SLTs of tech enabled international companies increase sustainable $MM revenues >30% YoY by creating and developing the culture and infrastructure for scaling up. ■Sales ■Operations ■Finance ■Strategy
2 年Great article Ian Hepworth?and spot on. The lending landscape has changed and given the current economic outlook will continue to be more challenging. Accountants are great at lots of things but not all really get borrowing and its costs. Love your comment ‘?Reading that will make my newsletters seem positively thrilling.’ ??