Invoice Finance, in essence, allows you to access tomorrow’s payments today.

By giving you advance access to the cash tied up in unpaid invoices issued to your customers, you can cover operational expenses, ensure ongoing operations and seize new opportunities in the market.

If you want to know more about how Invoice Finance could benefit your business, explore our product page here.

However, one of the more common concerns amongst clients is whether Invoice Finance does or does not have a business credit impact. That is the question we will be covering in this article.

Does Invoice Finance affect your credit rating?

The short and simple answer is that it does not have a credit impact.

Used well, a tailored Invoice Finance facility with a reputable lender such as ScotPac is actually a neutral to positive solution for your credit rating. It can help you pay suppliers on time, reduce debt to the Australian Taxation Office, and improve your credit profile over time, without having to take on additional debt.

Does Invoice Finance show up on your credit file like debt?

Invoice Finance, whether it is Invoice Factoring or Invoice Discounting, is not the same as a business term loan or overdraft.

It is usually structured as a sale of your invoices. Therefore, it does not typically appear on credit reports as it is not considered a liability or as a factor that increases debt-to-equity ratio.

In instances where Invoice Finance or a similar facility does register, for example as a security interest over receivables, it is likely to be seen as a working capital facility rather than debt that indicates a business in financial stress.

A well-managed Invoice finance facility is actually a sign of positive, proactive and healthy cash flow management. Why is this the case?

  • There is no traditional loan balance
  • There is no term loan on your balance sheet
  • Security is in the form of accounts receivable not an asset

Can Invoice Finance have a positive credit impact?

Yes. Invoice Finance allows businesses to:

  • Meet their financial obligations
  • Pay suppliers early and in full
  • Ensure positive, smooth cash flow
  • Grow and expand their businesses

All of these factors can contribute to actually improving one’s credit rating.

With predictable access to a set number (and value) of invoices, your business can better manage its operational payroll and tax expenses which for small and medium sized enterprises can make a significant difference in your business credit score.

How to use your Invoice Finance for a positive credit impact?

Invoice Finance allows you to utilise short-term loans, business credit cards and emergency overdrafts. Yet these financial solutions, while they have a place, can reduce your credit rating if not properly managed.

Invoice Finance, if employed to achieve consistent cash flow and no or fewer late payments can actually make your business financially stronger.

But how can you best use Invoice Finance to improve your credit rating?

  • Manage your working capital to ensure all creditors are paid on time, including the ATO
  • Avoid high-cost, heavily utilised credit lines
  • Demonstrate financial discipline and recurring revenue through smart use of the advance cash

How can you ensure your Invoice Finance doesn’t impact your credit rating?

When you work with the lending specialist at ScotPac, we will ensure your financial facility is structured and tailored to meet your needs.

This includes:

  • Aligning access to your debtor days
  • Ensuring you have working capital for peak expenditure periods
  • Taking into account your business growth plans

Our lending specialists understand how to conduct proper debtor analysis to set the right credit limits and maintain adequate processes for manageable, seamless cash flow. How do we do this?

  • We make sure that your Invoice Facility is the right size for your typical value of accounts receivable
  • We ensure that we have plans for scalability as needed
  • We avoid overcommitting that could place pressure on your cash flow management
  • We regularly review your debtor book
  • We employ credit insights when onboarding new and large customers to your approved facility

Can Invoice Finance have a negative impact on credit?

Invoice Finance, like all financial service offerings, can have a negative credit impact if it is mismanaged, misaligned or obligations not met.

A breach of agreement could be a reportable issue and then affect your credit. What is a breach of agreement?

  • Not buying back disputed or unpaid invoices under a recourse facility; or
  • Defaulting on a personal guarantee

Other factors that can have a credit impact and that you should be aware of include:

  • Your debtors being unreliable
  • Poor credit controls
  • Limited visibility over aged accounts receivable

However, ScotPac’s specialists will work with you to ensure comprehensive debtor credit checks and optional bad-debt protection is in place, if needed. These solutions help manage and reduce the risk of negatively impacting your credit rating.

Contact your local ScotPac office today.

 

Frequently Asked Questions about Invoice Finance and Business Credit Scores

Will using Invoice Finance damage your business credit score?

In most cases Invoice finance does not damage your business credit rating. 

It is not like a traditional loan and therefore not a liability on your balance sheet. 

Is Invoice Finance good for businesses’ credit ratings?

It certainly can be. If used to ensure consistent on-time payments to creditors and demonstrate smart cash flow management, it can have a positive credit impact. 

Does it appear on a business credit report?

Invoice factoring itself does not usually appear like a loan on your credit report. A security interest over receivables may be visible but it is considered a common working capital solution and not indicative of anything wrong with your business. 

Can Invoice Finance prevent access to business loans later?

Generally, no. Invoice Finance can be used alongside a variety of other forms of business finance. Plus, when employed strategically to improve cash flow and reduce late payments, many lenders view Invoice Finance use favourably. 

Do you need strong credit to access Invoice Finance?

With ScotPac, we focus more on the quality and credibility of your customers than your credit rating. That is why Invoice Finance can be an excellent working capital solution for growing small and medium sized businesses.