Are You Eligible For Invoice Finance?

Businesses are increasingly turning to invoice finance as an attractive alternative to traditional bank lending, particularly given the current economic crisis. In short, invoice financing involves handing over the rights to a portion of your invoice book to an outside finance agency, in return for an up-front cash payment. This can be extremely helpful to businesses with a regular income stream which face short-term cashflow issues. However, not all businesses qualify for invoice finance deals. You can find out whether you are likely to be eligible by assessing your business by the criteria set out below.

Most invoice finance deals will only be offered to businesses who undertake the majority of their transactions with other commercial organisations. Retail businesses are often viewed as too high risk for an invoice finance agency to deal with, as the rate of default from individuals is much higher. Whilst you may be eligible if some of your invoice book deals with individual customers, you are unlikely to be offered a deal if the bulk of your transactions are not qualified as ‘business to business’. If you deal with self-employed contractors, most invoice finance agencies will treat this as ‘business to business’ work, although you will need to check the requirements of the specific organisation you are dealing with.

You may also have eligibility issues if you are overly reliant on one business customer, particularly if they are not a major corporation. Invoice finance agencies prefer a wide spread of transactions throughout your invoice book, as this reduces the risk of default from one particular customer. On the other hand, however, these transactions should not be too small, as it will not be worth the while of the agency to chase hundreds of tiny invoices. Such organisations make their money by chasing invoices quickly and effectively, and this is best done by pursuing large debts from other businesses.

Businesses are more likely to be able to receive invoice finance if they already have an established revenue stream, for obvious reasons. Many finance agencies will impose a minimum turnover requirement on their deals, although increasing numbers of organisations are also dealing with start-up businesses. If you have not been trading for long, your financial projections of turnover and revenue may be enough, as long as they are based on solid information and analysis.

If you do have a financial history, invoice finance agencies are less likely to offer you a deal if you have a record of invoice disputes or of regular customers who do not pay their debts within 90 days. You may also be in a ‘high risk’ sector of business, in which case an invoice finance deal will be more difficult to obtain. For this reason, as well as the status of your own cashflow, it is important to chase invoices quickly and efficiently, and to ensure that you are always paid on time. Your future financing may depend on it!

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.

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