Part two of a two-part series on Invoice Financing by Ed Castaño, VP of Operations at BlueVine— a venture backed online provider of working capital financing to small businesses. Read part one here.
Now that you’ve read our invoice financing primer, you’re ready to start looking for a partner. Below, we review the costs, fees, and potential contract terms you might run into so you’re armed with the information you need to find an invoice financing provider that is a good fit for your company.
Costs and Fees
As you look for a potential partner, look for simple, clear and transparent pricing. Avoid anything you can’t understand, especially if the provider is not willing to invest the time to help you understand it. If they don’t offer their pricing on their website, be cautious. That’s usually a sign an unscrupulous provider, or someone ready to give you a bait and switch. If the provider offers a “teaser” rate, you’ll want to understand the conditions of the rate. Is it accessible to all or only for hand-picked customers? Does the rate only apply for the first month, the first invoice, or something else? All of these are important clues as to whether or not you’re getting a good deal.
Contracts and Minimums
Long-term contracts are standard in the industry, but new companies, like BlueVine, are starting to change this. Some providers will have you sign restrictive, long-term contracts, with minimums and hefty cancellation penalties. You should consider if you are prepared to loose complete control over your funding costs or whether you would rather have the flexibility of using invoice financing only as you need it.
Terms & Penalties
You’ll want to get comfortable with the terms and potential penalties of any provider you work with. If you don’t feel the terms or penalties are fair, keep looking. Over time, you’ll get a good sense for what is fair and standard. Don’t sign contracts without understanding what you’re getting into to. While reading legalese is not fun, it might save you a lot of grief in the future.
Notification vs. Non-Notification
The bulk of invoice financing companies work on a “notification” basis. What this means is that they will notify your customers when you advance your invoices and require that the funds be routed directly to their address, instead. If you prefer maintaining control of all customer communications, look for a company that works on a “non-notification basis”.
Advance Rate
The advance rate is how much of the invoice face value you receive up-front. Generally speaking, you should expect to receive between 80% and 90% of the invoice face value.
Factoring vs. Single Invoice Discounting
In traditional invoice factoring, companies require you to factor all of your invoices with them. In contrast, a “spot factoring” or “single invoice discounting” arrangement gives you the flexibility to decide which invoices you want to advance. Be clear on which of these options you are open to before selecting a provider.
Online vs. Off-line
Most traditional invoice financing companies work offline. However, with online accounting software becoming increasingly popular, you’ll want to consider if you want to deal with paperwork, scanning and faxing or more into the digital realm and have a seamless online experience.
Deciding
Ultimately, your decision will come down to how much weight you place in each of the different criteria described above. Remember, you’re not looking just for the cheapest provider, or the fastest provider. While speed or cost may be more important to you, for the long-term good of your business, look for a business partner that will give you and your business the services, flexibility and terms that you deserve. Identify a partner that will serve your company and grow with it. You don’t want to settle for anything less.
An alternative to traditional invoice financing
At BlueVine, we specialize in serving small businesses that are overlooked by banks and other invoice financing providers. We take pride in our speed, flexibility and transparency. We seamlessly connect with QuickBooks, Xero and FreshBooks, so you can see what invoices are eligible for advance. We accept invoices with a face value of $500 or more, and offer credit lines going up to $50K. Funds are available in as little as 24hrs on your first advance and as fast as 45 minutes, subsequently. You can sell as many or few invoices as you like, as often as you like. We don’t require long-term contracts or commitments. A great produce and excellent service is the biggest retention tool we have. We provide a solution that allows small businesses to maintain full control of their customer relationship. All communications with your customers remain exclusively with you. BlueVine does not notify your customers that you have sold an invoice. If you think invoice financing can help you grow your business, give us a try. We’re in business to help your business.
This article was originally written on December 2, 2014 and updated on November 2, 2016.
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