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What is Invoice Discounting?
Please see Pathfinder’s Invoice Discounting page for more information.
What is Factoring?
Please refer to Pathfinder’s Invoice Discounting page to find out more.
What is a commercial finance broker?
A commercial finance broker is a financial intermediary who connects businesses seeking financing with suitable lenders or financial institutions. They help businesses navigate the complex world of commercial lending and secure the most appropriate financing solutions.
Why should I use a commercial finance broker instead of going directly to a lender?
There are several compelling reasons to use a commercial finance broker:
- Expertise and Guidance: Brokers are experts in the finance industry and can provide valuable insights and advice tailored to your specific needs. They can help you choose the right financing option, structure your application, and navigate complex financial products.
- Access to Multiple Lenders: Brokers work with a network of lenders, including traditional banks, challenger banks, and alternative independent lenders. This means you can access a wider range of financing options than you might find on your own.
- Time Savings: Brokers can save you time by doing the research, paperwork, and negotiation on your behalf. They streamline the application process, helping you get funded faster.
- Bespoke Solutions: Brokers can match your business with lenders that specialise in your industry or specific financing needs, resulting in a more tailored and favourable funding package.
- Increased Approval Odds: Brokers can assess your financial situation and creditworthiness, making sure you apply to lenders where you have a higher chance of approval, reducing the risk of multiple rejections.
- Negotiation Skills: Brokers have strong negotiation skills and can often secure more favourable terms, interest rates, and loan amounts than if you were to negotiate directly with a lender.
Is invoice finance a long-term or short-term solution?
Invoice finance is often used as a short-term solution to address immediate cash flow needs. However, many businesses use it as an ongoing financing tool to support growth and manage working capital over the long term.
What types of businesses can benefit from invoice finance?
Invoice finance is suitable for businesses across various industries, including temporary recruitment, haulage, wholesale, manufacturing & engineering, construction, printing & packaging, and many more. It is particularly beneficial for growing businesses with slow-paying customers or seasonal cash flow fluctuations.
What are the fees involved?
The cost of invoice finance can vary depending on several factors, including the invoice finance provider, the terms of the agreement, the creditworthiness of your customers, and the specific product you choose. Invoice finance typically involves two primary fees: a service fee and a discount fee.
The Discount Fee
The discount fee, resembling an interest rate, represents the cost of the funds advanced to you against your outstanding invoices. This fee accumulates over time, reflecting the duration it takes for your customers to settle their invoices.
The Service Fee
The service fee covers the cost of managing your ledger and providing administrative services related to your financing arrangement. It is charged regularly, often as a percentage of your gross turnover.
Do businesses need a good credit score to qualify for invoice finance?
While a good credit score can help, invoice finance is often based more on the creditworthiness of the business’s customers. Lenders are primarily concerned with the ability of the customers to pay their invoices. Therefore, businesses with strong customer relationships and reliable customers can still qualify for invoice finance, even with less-than-perfect credit.
Do start-ups qualify for invoice finance?
Start-ups can be eligible for invoice finance, but it may be more challenging for them to secure this type of financing. Many lenders prefer businesses with a proven track record and financial history. However, some invoice finance providers specialise in working with start-ups, and eligibility criteria can vary.
What are the typical eligibility criteria for invoice finance?
Common eligibility criteria for invoice finance include:
- B2B Business: Invoice finance is primarily designed for businesses that sell goods or services to other businesses (B2B). B2C (business-to-consumer) invoices are typically not eligible.
- Creditworthy Customers: The invoices must be owed by creditworthy customers or other businesses with a history of timely payments. The creditworthiness of the customers is a crucial factor for approval.
- Invoice Quality: The invoices should be clear, accurate, and free of disputes or legal issues.
- Business History: Some lenders may require a minimum trading history to establish your business’s credibility.
- Minimum Invoice Amount: Many providers have a minimum invoice amount that they are willing to finance. This threshold varies by lender.
- Not in Prohibited Industries: Some industries, such as gambling or illegal activities, may be excluded by certain lenders.
- No Previous Defaults: If your business has previously defaulted on invoice finance arrangements, it may impact your eligibility with other providers.