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What To Look Out For With Invoice Financing


Video Transcript

Invoice Financing As a Private Lending Solution.

Today I want to talk to you a bit about what are some of the things you need to watch out with invoice financing so you didn't get caught in any traps so youcan get the best deal possible for you.

So the number one thing that a lot of financiers will talk to you about when they quote you on your invoice financing is obviously the interest rate. Now the interest rate is actually a bit of an interesting thing here in terms of how they charge it what are they chargingyou interest on and that's a really
important point.

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What interest is being charged on your funding

Are they charging you interest on the money they advance in suit so if you had $100,000 invoice and their advance for you $80,000 are they charging you interest on that eighty thousand or are they charging you a percentage of the invoice amount the hundred thousand that is and that's really important that you're aware of that. Because typically what happens is a financial day off we charge you two percent of the invoice amount but will only give you 80 percent of it and you're thinking in your mind well that's twenty four percent interest but in fact it's actually not.

The true cost of borrowing with different private lenders

They've only given you eighty percent of the money so your effective interest rate there is about 30 percent so that's one key thing you need to look out for is what are theycharging you interest on the invoice amount or the actual amount of advance.

The second thing you need to look out for is how much are they advancing your per invoice because you as a business owner need to be able to do a calculation if that's going to be enough for you to cover the expenses of your next delivery and that's really important so whether you're getting sixty percent 70 percent or 90 percent is going to be critical to whether you can have a relationship with thatfinancier for the invoices you want by name so number three thing you need to look out for is management fees now
management fees can be charged as a fixed fee per invoice or they can be charged as a percentage of the invoice amount.

I really want you to be careful about this because if they're charging your percentage of the invoice
amount effectively they're just charging you an extra interest cost on the money they're providing you with and you don't want to get caught out on that so it's really important they're transparent with you about how they charge your management fees so the fourth thing you need to look out for is does your provider invoice financing one or finance your whole terrible as a business owner you should only finance those invoices for those contracts that you need financing on and not having to finance your hold edible so just look out for that so the 15 on what you look out for is does your provider of invoice financing want you to take out debtor insurance and that's really important because that our insurance yes can help you get invoice financing for riskier debtors but it's also an additional cost to you so watch out

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