So, after taking a look at the benefits of invoice finance, you have finally determined that it is the right way for boosting your operations, and now, you are looking for a good invoice finance lender. But you do not know which non-banking financial company will be ideal for your business needs. Well, we know that online research is the go-to solution nowadays and therefore;
We are listing five things for you to consider when choosing invoice finance lenders.
Charges, Fees and Penalties
While many invoice discounting firms may tell you that they have the lowest factoring charges in the industry, it may not essentially be true. Many a SME owner has been surprised by additional fees and penalties which are a part of the fine print and can drive up the cost of invoice finance. So, there are a few things you should look up in the terms offered by the NBFC, such as:
- Advance Percentage (usually up to 90%)
- Factoring Fees
- Reserve Requirements
- Processing Charges
- Setup or Application charges
- ACH Fees
An analysis of these charges and fees will help you calculate the actual cost of invoice finance and thus make a realistic comparison between the terms offered by different invoice finance lenders.
Also, have your financial advisor or lawyer look up the contract for fines and penalties. Some invoice discounting companies place long-term contractual obligations in the terms and conditions. Not meeting these terms may result in serious fines and penalties. There might be clauses which state a monthly minimum to be met or for buy back of unpaid invoices at full face value. Knowing about all these financial encumbrances is really important for keeping the cost of borrowing in check.
Experience in Finance
Next up for scrutiny is the experience of the invoice financing company. Since FinTech is an emerging industry, your invoice finance company may not be as old as a traditional banking institution but the experience of the people who are in-charge counts. You can connect with the top-management of the invoice finance companies under consideration through LinkedIn or other professional social media platforms. Their profile and portfolio will let you know about the type of work they have done in the past and if they have a connection with your industry or not.
A satisfactory answer here will conclude almost eighty percent of your search for an invoice finance lender.
Value Added Services
Many invoice finance companies also offer additional services which work in tandem with their primary service. For example, an invoice discounting company may help you with collection efforts for overdue invoices which have been discounted or it may offer help in the form of working capital loans and other financial vehicles based on your relationship with the NBFC. Here are some examples of value-added services offered by invoice discounting NBFCs,
- Credit/Background checks on potential or current customers
- Online account management and reporting
- Invoice management
So, if any of the value-added services offered by a particular invoice finance lender appeal to you, you can make a consideration in their favour.
An important aspect of any financial service is the level of customer engagement. Since the invoice finance lender will be handling your customer’s invoices and you are a customer of the invoice finance lender – there is a three-way partnership here. Therefore, you should check the information and reporting procedures followed by the invoice finance lender you are considering for the partnership. Here are a set of question that need to be ticked with a yes.
- Can the lender answer your questions and queries promptly and completely?
- Is the lender open about the terms and conditions of the contract?
- Does the lender have an online reporting and account management system?
- Are there dedicated account managers and customer support personnel to handle your concerns?
- Are the customer service hours offering reasonable convenience?
Goodwill and Integrity
Contract terms and conditions, experience, value-added services, and customer service aside, the actual word on street also matters when you consider a financial partner for your business. The goodwill and integrity of an invoice discounting company matters the most because your enterprise’s growth depends on timely, professional handling of the finances by them.
After you have shortlisted invoice finance partners based on the first four things on our list, use your business acumen to make the final choice. For help you can talk to a few existing clients of the NBFCs you are considering and get a sense of how fair are they in invoice assessment and disbursals.
The time you take for researching different invoice discounting companies will ultimately benefit your business operations. So, do not make haste and plan for a long-term, healthy partnership.
If you are looking for a credible invoice finance lender, look us up at www.livfin.com