7 RULES TO FOLLOW WHEN INVOICE REFACTORING
Invoice refactoring is extremely important for contract and temp recruiters, it allows you to shop around for a better deal as your recruitment business grows.
At TBOS we recommend an invoice finance review every year for our clients. In many cases it delivers a significant saving as it reviews the funding needed for that particular agency after their last year’s figures. Depending on their requirements and yearly projections we can assist them by obtaining 2-3 invoice finance quotes. This ensures they receive the most competitive funding facility with the maximum availability for their business requirements.
1. IS THERE A COST SAVING TO BE MADE AGAINST YOUR CURRENT FACILITY?
This is the number one question to ask yourself. You need to justify a new funding facility against your existing and projected figures. Compare your current service charge and interest figures to the new provider and see if there is a potential saving. Then look at your projected figures for the coming year and see if there is a greater saving to be made if you hit these. If there is a significant saving to be made (above £10,000) then it is worthwhile and you should look at switching more seriously.
2. WHAT ARE THE SET UP COSTS & EXIT FEES WHEN MAKING THE SWITCH?
Moving from one invoice finance company to another is not just about how much is saved on the headline figures (service charge and interest) but also what additional costs may be involved. You need to assess what the cost of moving will be, these could be either set up charges from the new provider or exit fees from your current facility. Most new providers will have a set up charge and will charge you to buy the debt from the other provider. Your current provider may also have exit fees within their agreements especially if you are leaving mid-way through your contractual period.
3. PREPARE A PLAN FOR THE TRANSFER PROCESS
Moving your invoice finance arrangement needs to be planned correctly to avoid any disruption to your cash-flow, especially when you are relying on these funds to pay contractors. It is recommended to only give notice to your current provider once you have a credit backed offer, with an agreed notice period you need to work through. You will then need to ensure all legal documents are signed, the online portal is set up correctly and all bank details are shown on invoices going out before the go live date. Once the new facility is in place you will need to notify your clients of the new bank details to avoid disruption of payments on your invoices.
4. CONTINGENCY PLAN FOR PAYMENTS BEING SENT TO OLD INVOICE FINANCE COMPANY
Although you have made your clients aware of the new bank details, sometimes there can be an incorrect payment to your previous invoice finance company. Not to worry, most providers will work together to get the funds transferred with minimal delay. However, this process could mean that the funds take an extra 1-2 days to clear which may affect your cash-flow requirements so it’s recommended you’re thorough in your communications to avoid wrongful payments.
5. NOTE THE DIFFERENCES BETWEEN BACK-OFFICE PROCESSES
Every invoice finance company is different in their back-office service. It’s worth noting their processes and their effect it will have on your back-office staff and/or accountants. Are their systems easy to use? How much time will it take to process? With invoice finance companies there are deadlines and thorough processes to be followed, if this is not feasible for your business it could result in delays to drawdowns or restrictions on your cash-flow.
6. CHECK FOR ANY RESTRICTIONS ON FUNDING
Each invoice finance company will have different views of which debts are risky. You should look for pay-when-paid clauses on contracts, mentions of them working with RPO’s, their available funding on placing overseas contractors and terms on concentration of debtors. Any of these will provide limitations on the funding you can obtain at a later date.
7. NEGOTIATE A BETTER DEAL WITH YOUR CURRENT INVOICE FINANCE PROVIDER
Moving invoice finance providers isn’t a quick process and can involve many meetings, discussions and emails. Therefore, it can sometimes be a good idea to use your new quotes to negotiate a better deal with your current provider to see if they can match the deal instead. Invoice finance companies won’t want to lose a client to another provider so you can use your skills as a negotiator to hopefully drive down the rates based on the quotes provided.
HOW TBOS CAN HELP YOU WITH INVOICE REFACTORING
TBOS works with a panel of reputable invoice finance providers to ensure our TBOS clients receive the best possible rates for their business needs. We will ensure that the facility is set up correctly and managed daily by our team, with regular reviews on the facility to ensure its sustainable for our client moving forward.
As and when the time comes for our clients to switch finance providers, our specialist back-office team works with the agency to limit disruption to their clients and ensure their cash-flow is managed correctly to provide a smooth transition. If you would like a free invoice finance review please contact the TBOS office on 0345 504 6333.