Extinguishing 4 Invoice Financing Myths

 In Business, Education

Let’s explain and extinguish 4 common invoice financing myths

Traditional invoice financing has acquired a number of myths over the years. One reason for these invoice financing myths is that large banks have been the key players in the Invoice Finance market. Due to their brand and bargaining power, SMEs have had little say in the flexibility of their invoice financing. This has spurred on a number of worries for SMEs. Luckily, the market is now being challenged by new, more innovative and flexible companies such as Funding Invoice. This means SMEs now have more bargaining power when it comes to their invoice financing.

The evolution of the alternative finance industry means these invoice financing myths should now be completely extinguished. Here we go:


1) Hidden fees

It is correct that many invoice finance companies have traditionally charged hidden and highly complex fee structures such as sign up fees, monthly fees and arrangement fees. Unfortunately many SMEs only notice this after submitting their invoices.

The evolution of the invoice financing industry has led to a call for greater transparency within the invoice finance market. Funding Invoice takes pride in offering transparent fees in order to help SMEs instead of tricking them.

Try our pricing calculator here: http://fundinginvoice.com/pricing-calculator/


 2) You must submit all your invoices

This invoice financing myth is a consequence of confusion between the invoice finance products – let’s clarify:

  • Most people are familiar with invoice factoring and discounting. These methods usually require the customer to upload all of the company’s invoices (its whole debtor book) and pay fees on all invoices. Even though, in many cases, the SME does not wish or need to raise finance against all of its invoices.
  • This means SMEs are paying high fees for a product that’s not necessarily needed. Many small businesses need flexibility when it comes to their cash flow. Invoice factoring and discounting does not normally allow this level of flexibility. This may hinder rather than help some SMEs.
  • Funding Invoice, on the other hand, offers invoice trading which offers a ‘pay as you go’ discounting product for individual invoices, in order to raise finance against specific invoices. This means an SME can pick and choose which invoices are financed. An SME will not be bound to submit a specific amount of invoices. This myth does therefore not carry any truth in terms of invoice trading.


3) Disrupts client relationships

This myth is two-fold:

I) Confidentiality:

This is another myth that has been stimulated by traditional invoice factoring. Invoice factoring allows little confidentiality. When entering into an agreement with an invoice factoring company, the SME allows the factoring company to chase the SME’s clients to repay the invoices. In the past, this has caused many professional relationships to crumble. As a result, many clients or customers are reluctant to establish new relationships with companies that are known to use an invoice factoring company.

Invoice trading companies such as Funding Invoice aims for a much higher degree of confidentiality as we have learnt from the negative impact factoring has had on SMEs and their client relationships.

In fact, Funding Invoice will never get involved in chasing payments on behalf of the SME.

II) Financial stability

Some may believe that if the client or customer is informed that invoice financing is being utilised, that clients will think this means the company’s financial outlook is unstable.

It is by no means true that only SMEs with uncertain financials use invoice financing. In fact, it is more difficult for SMEs with bad financials to receive the financing in the first place due to extensive credit checks. Secondly, invoice financing is becoming so common and much more well-known that it is now seen as a clever way for SMEs to manage their cash flow, rather than as an effort to save the company.

Indeed even the government has introduced legislation to encourage SMEs to use invoice financing.


4) It is used as a last resort just like pay-day loans

No! SMEs are owed around £30bn in payments at any given time and the average payment term is 45 days in the UK. Most SMEs experience these cash flow issues. Even large companies experience these issues, particularly those with large supply chains.

The invoice financing myths mentioned above have fuelled the ‘last resort’ reputation and has discouraged some from exploring invoice financing for cash flow management.

The fact that banks have become reluctant to finance SMEs has encouraged transparency within the invoice finance market and has transformed market reputation from ‘last resort’ to a daily cash flow management tool.


To extinguish any invoice financing further myths – this is how simple a Funding Invoice, invoice trading transaction is:

Figure illustrating a simple Funding Invoice transaction

In summary, most of the invoice financing myths mentioned stem from just one method of invoice financing; invoice factoring and sometimes invoice discounting. It is therefore important to acknowledge that today there are numerous cash flow solutions available to SMEs. Invoice trading is a particularly attractive option for SMEs as it allows; a high degree of flexibility, no long term commitment and transparent, simple fees.

Here at Funding Invoice, our market research tells us that many SMEs are unaware of the available solutions. We estimate that there are around 700,000 businesses that are eligible to be using invoice finance in the UK. There are, however, only 45,000 businesses currently using it to date.


Find out more about our service and how we can help to support your business here: http://fundinginvoice.com/businesses/

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