Scared of the Unknown?

If you’re nervous about jumping in with invoice finance, this article will take a look back at its past and demonstrate how far invoice finance has come in the past 700 years.

Factoring goes way (way) back.

Invoice financing has a long history, dating back to the days of King Hammurabi in Mesopotamia. However, it wasn’t until the 1300s that the modern form of invoice financing began to take shape. During this time, merchant bankers in Italy began to offer funds to businesses in exchange for their unpaid invoices. This practice quickly spread to other parts of Europe. In the UK, Invoice Factoring (then known as “factorage”) was used by merchants to finance their trading activities and can be dated back to the 17th century.

In the early 19th century, invoice factoring became more widespread as businesses began to use it to improve their cash flow. The first factoring companies in the UK were established in the 1830s, and by the end of the century, invoice factoring was a well-established form of business finance.
Despite its long history, invoice financing has a somewhat bad reputation. This is due in part to the fact that, back in the day, it was used by unscrupulous businesses to prey on small businesses who found themselves between a rock and a hard place.

Many still believe that using invoice financing is a sign of financial instability as if the company is struggling to manage their cash flow and not prepared for growth. Which, in turn, can make it difficult for businesses to obtain other forms of financing in the future.

Some factors charged high fees and interest rates. Ironically these high fees just piled on more pressure for the small businesses. It was a vicious circle of get money to finance growth but end up using the loan to finance the loan. A large number of early factoring companies employed aggressive collection techniques to keep the payments coming in. A horrible cycle of high stress and financial weakness that created a fast track to insolvency.

Is the bad reputation still justified?

Short answer is an unequivocal NO.

Like every other part of the financial services industry Invoice financing is heavily regulated. The predatory lenders and unscrupulous deals of the past are long gone. Modern invoice financing looks nothing like it once did.
Perhaps one of the biggest myths about invoice finance is that is a ‘last resort’ line of credit. Invoice finance isn’t for companies with bad credit, it’s for companies who have great credit and solid customers. In fact, invoice financing can be a valuable source of short-term financing for businesses that need to improve their cash flow.

The other big misconception is that when you sign up for factoring you have to borrow against all invoices. You chose which invoices to borrow against and the fees are no more than a typical loan. Not the 25% and higher interest rates that many factors used to hand out.
What should you consider when seeking Invoice Factoring.

Here are some factors to consider when deciding whether invoice financing is right for your business:

If invoicing and credit control are things you can’t crowbar into your day, then outsourcing to an invoice finance lender is a great option – they will do it all for you.

Your customer base:
If you have a strong customer base with a good history of paying their invoices on time, invoice financing can be a good option.

Your credit score:
If you have a good credit score, you may be able to obtain invoice financing. Which can then be used to finance your company’s growth.

Improved cash flow:
Invoice factoring can help businesses improve their cash flow by freeing up working capital that would otherwise be tied up in unpaid invoices. This can help businesses grow and expand their operations.

Reduced risk:
Invoice factoring can help businesses reduce their risk by transferring the responsibility for collecting payments from customers to the factor. This can free up businesses to focus on their core operations.

Today, invoice factoring is a tool that facilitates growth and is widely used by businesses of all sizes to help them take their business to the next level.
To find out more about Invoice Factoring, or one of our other services, please check out our blogs page here –