Disadvantages of Invoice Financing

You have probably heard about all the advantages of invoice financing. It is a great way for a company to alleviate cash flow concerns. Providers will give you 80-90% of what an invoice is worth with the rest being paid after your client pays what is due. So if you are owed £2,000 by a client, you could receive £1,600-£1,800 straight away with the rest paid later. The provider takes its cut and everyone is happy. But are they? Although invoice financing has several things in its favour, there are a few negatives that must be explored before you commit your business to it.


Despite its title, invoice financing is little more than a loan and you are liable to pay the provider their slice of the pie no matter what happens with the customer. Although you get paid up front, you may still have to pay interest on the money given straight away if the customer is extremely slow to pay. If you choose recourse factoring, you are still responsible for the customer’s debt. If the client defaults on what is owed, you have to pay the provider their fee regardless. It is not uncommon for a provider to retain invoices paid by a company’s other clients until they have been paid their service fee. The additional cost of hiring an invoice financing provider may be out of reach for small businesses.

Loss of Control

This is probably the single biggest issue that prevents more businesses from seeking the services of an invoice financing provider. For a start, the credit checks performed by these providers will limit the level of risk you can take. If the provider says that a client’s credit record makes them unreliable, you will be unable to do business with that client. While this is not necessarily a bad thing, it can hinder the growth of some companies.

Once you have used invoice financing for an extended period of time, it will be hard for your business to return to its previous ‘normal’ state. Your company will be used to the convenience of having the majority of invoices paid immediately and may find it difficult to adjust to the reality of waiting 30 days or more for invoices to be paid. As a result, you could find that cash flow problems manifest themselves once again.

Impaired Customer Relations

When you hire an invoice financing provider, you will find that debt management is now out of your hands. They will be the ones contacting your clients demanding speedy payment of invoices. Some of your existing clientele may react badly to this situation and even threaten to cease trading with you. There is also the chance that the provider will refuse to accept new customers while existing invoices still need to be paid. Although you are willing to accept the risk, the provider may not be so eager.

You should consider the above points before deciding to use the services of an invoice financing provider. In terms of ‘getting back to normal’, your business should have saved enough money to ensure that cash flow is not a problem.

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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