6 Ways to Optimise Invoice Finance for Your Clients

Navigating the complexities of Invoice Finance can be daunting for businesses, both new and established. With nearly 20 years of experience in the industry, TBP – Trusted Business Partner’s Kat Foster understands the nuances that can make or break a successful Invoice Finance arrangement. Invoice Finance, a financial solution where businesses sell their invoices to a third party to improve cash flow, can be a game-changer if managed correctly. However, to truly maximise its benefits, businesses need to be aware of various factors and best practices.

In this blog, Kat shares her top tips to help you and your clients make the most out of their Invoice Finance facilities. Whether you’re currently using Invoice Finance or considering it as a new option, these insights will guide you in optimising the process and avoiding common pitfalls.

1. Understand the Pricing & Fee Structure
   All Invoice Finance facilities come with two different charges: the Service Charge and the Discount Charge. Additionally, there are other fees to take into account, such as Trust Account, CHAPs, BACs, and re-factoring fees. Every facility will be priced on an individual basis since no two businesses are the same. Understanding these costs upfront can help you better manage your finances.
2. Is Bad Debt Protection Necessary?
   How well rated are your clients’ customers? Firstly you must evaluate their creditworthiness. If their sales ledger is heavily concentrated on one or two customers, bad debt protection might be essential. However, for businesses dealing with highly rated, blue-chip customers, this could be an unnecessary expense. Assess your risk to decide if this protection is worth the cost.
3. Prioritise Cash Collections
   Even with an Invoice Finance facility, it’s crucial to ensure timely payments from customers. Just because they have had most of the money for an invoice from their funder, it doesn’t mean they can sit back and relax. Remember, the longer an invoice remains unpaid, the more charges accumulate. Keeping cash collections a priority will help minimise these additional costs.
4. Drawdown Funds Wisely
   Use your Invoice Finance facility strategically. It can be a great tool for managing large expenses, like VAT bills, or for when times are tough-spend wisely! Only draw down funds when necessary to avoid unnecessary charges and maintain financial flexibility.
5. Facilities Will Grow and Evolve with Your Business
   Invoice Finance facilities are reviewed annually as a minimum, and are designed to grow and evolve with the businesses they are supporting. From increased funding limits to a change in customer dynamic, these facilities evolve with your needs. What’s agreed upon on day one can be adjusted as your business changes.
6. Communication is Key
   An Invoice Finance Manager (IFM) is more accessible than a traditional Bank Manager – who you can go weeks or months, if not years without speaking to (if you are lucky enough to have one). An IFM should be there to help through the good and the bad; make sure you keep them in the loop with any changes in the business or if you need a bit of extra support – they can’t help if they don’t know!

We will happily review any Invoice Finance facilities with your clients, either with an existing facility in place or to help explore new options. Our services are at no cost to you or your client, as we are paid directly by the funder. Ensuring you get the right financial support can make a significant difference in managing your business’s cash flow effectively.

By implementing these tips, you can maximise the benefits of Invoice Finance and ensure it works optimally for your business needs.