Finding and comparing the best Invoice Finance providers in Australia can be overwhelming and ultimately is more than just a simple decision on price. You need to consider whether the arrangement is a recourse or non-recourse one, what level of confidentiality with your customers is offered, whether it includes financing the whole ledger or just single invoices, as well as the ease of setting up and closing down the facility and agreement.
Ensuring you have clarity and sufficient information regarding all of these questions is important to ensure the Invoice Finance companies you’re considering are the best ones for you.
To explore why you should consider ScotPac for your Invoice Finance needs, check out our product page today.
What is the Difference Between One Invoice Finance Facility And Another?
Every Invoice Finance provider will offer a solution to unlock the cash tied up in your unpaid invoices. But what differs from provider to provider and one Invoice Finance facility to another is the structure and effectiveness of the solution that underscores that offering.
Here is a handy checklist to help you determine whether the Invoice Finance facility provider is right for you.
- Consider whether the risk of non-payment sits with you or with the finance provider
- Confirm whether your customers are informed that you’re using Invoice Finance
- Check whether your whole ledger is financed or just chosen individual invoices
- Confirm what notice period applies if you choose or need to close the facility
- Consider what has to be in place before a facility can start
- Check how your funding limit is set and reviewed as your business grows and scales
A practical example
A business has 2 offers in front of it. The cheaper one funds the whole ledger, is a recourse arrangement, and requires notice tied to the contract anniversary. The dearer one lets the business choose which invoices to submit, offers Bad Debt Protection as an addition, and can be closed on a fixed notice period. On price alone the first wins. But this business has one customer at 40 percent of its ledger, and it needs funding twice a year rather than continuously. On the second facility it would pay for what it uses, and the risk it is most exposed to is the one the first facility leaves entirely with it. The point is not that one is better. It is that the answer changes with the shape of the ledger, which is why the six questions above come before the price does.
What is the Difference Between a Recourse and a Non-Recourse Facility?
Different Invoice Finance providers offer different structures of funding. Recourse or non-recourse is one of those differences.
It ultimately determines who bears the risk if a customer of yours doesn’t pay and settle their invoice.
Recourse
With a recourse arrangement, your business remains responsible for the debt if your customer fails to pay. The provider has provided an advance on the cash owed to you and if your customer fails to settle their account, it is up to you to make up the shortfall.
Non-recourse
A non-recourse arrangement transfers specified non-payment risks to the provider under the agreement. It does not necessarily cover every reason a customer might fail to pay. Check approved debtors, coverage limits, exclusions and claim conditions before comparing it with recourse funding.
ScotPac offers Bad Debt Protection as an optional addition to Invoice Finance. It can cover agreed risks arising from customer insolvency or inability to pay, for approved customers and within agreed limits. Ask how the protection affects fees, funding and your obligations.
Compare the actual agreement and any protection offered, including the risks that remain with your business. Eligibility, cost and coverage can differ between facilities.
Will Your Customers Know You’re Using Invoice Finance?
Whether or not your customers will be aware of your use of an Invoice Finance facility depends on the type of facility offered by the provider.
Always check whether the Invoice Finance providers you are comparing offer:
- Debt Factoring; or
- Invoice Discounting
What is Debt Factoring?
With Debt Factoring, your finance provider manages all of the payment collections themselves. For this reason, your customers will be aware of the Invoice Finance arrangement.
Whether it is right for you depends on your business. If you do not have a dedicated accounts receivable or debt collection team, shifting the responsibility and work to your provider can be useful.
What is Invoice Discounting?
With Invoice Discounting, your business retains responsibility for and control of collections and therefore customer contact. With this arrangement you can keep your use of Invoice Finance completely confidential.
This Invoice Finance structure works for businesses that want to keep managing their own customer relationships and maintain confidentiality around their use of the facility.
Not every Invoice Finance company provides both options so make sure you discuss it with your lending specialist before signing.
Does the Invoice Finance provider cover your whole ledger or single invoices?
The next question to clarify is whether the Invoice Finance companies in question require you to finance your entire sales ledger as a condition of the arrangement.
The best Invoice Finance providers will empower you to select individual invoices as and when needed, so that you can fund one large order or access payments owed by a slow-paying customer without financing the rest of your ledger.
A whole-ledger facility can be the right choice for businesses with steady, ongoing funding needs across their customer base. But having the option for a lone-invoice or selective Invoice Finance structure will be preferred for businesses with larger individual invoices, seasonal spikes or occasional funding needs.
This is one of the most common and impactful structural differences between Invoice Finance companies, so always take the time to make sure their offering suits your specific needs.
What is Needed to Set Up or Close Down an Invoice Finance Facility?
The best Invoice Finance providers make the process of setting up a facility simple and tailored to your needs.
With industry-leading providers, clients typically apply and provide details of the outstanding invoices and customer base. Then the provider reviews your sales ledger and assesses the creditworthiness of your customers. If they are eligible and if the terms are mutually agreeable, the facility is set up and readied for funding as soon as possible.
What are the eligibility criteria?
The baseline eligibility criteria will vary from provider to provider.
For example, ScotPac’s Invoice Finance criteria include B2B sales on standard trade terms, at least six months in operation, and a minimum of $10,000 in invoices per month. The business must be registered and operating in Australia, with invoices in Australian dollars and creditworthy Australian debtors. Other products and providers may have different criteria.
As far as customers go, they need to be creditworthy and reliable in settling their accounts.
How Do You Close an Invoice Finance Facility?
When comparing Invoice Finance companies, it is important to not just consider the set-up of the facility but also what may come when you no longer need it.
Look closely at the notice period required to end the facility. In some cases, it’s a fixed number of days and in some instances, it is fixed to a contract anniversary, and subject to conditions.
Ask whether the facility has a minimum term and what notice, repayment, fees or other conditions apply when closing it. Do not assume that a flexible funding period means there are no exit obligations.
It does not necessarily matter if a provider has minimum terms or no terms at all. As long as the arrangement is clarified and works for your business.
Why Consider ScotPac for Invoice Finance?
ScotPac has more than 35 years of experience and offers Invoice Finance facilities from $10,000 to $200 million, subject to approval. Available funding can change with the value of your eligible receivables and agreed facility terms.
Comprehensive business finance facility
ScotPac provides more than just Invoice Finance. Our business solutions include Trade Finance, Asset Finance, and standard Business Loans.
Technologically assisted client service
ScotPac provides online client tools for managing facilities. Its separate Partner Portal supports brokers and advisers. Ask which client portal and support services apply to your arrangement.
Small business advocacy
ScotPac reports supporting more than 9,300 businesses and funding $26.3 billion in invoices annually across its business. Our specialists work with SMEs to understand their funding needs and growth plans.
