Claims that the invoice finance market is ‘unregulated’ and lands businesses with ‘hidden’ fees are inaccurate and may deter SMEs from seeking alternative funding, says John Atkinson
Research by MarketInvoice which claimed that the invoice finance market is unregulated and is hitting businesses with “hidden” fees paints an inaccurate picture of the industry.
The research, published by The Financial Times, alleges that some 26,000 UK businesses face up to 35 hidden fees in their invoice finance contracts with banks.
It is also claimed that the invoice finance market is “unregulated”, which is far from the case. Rather, invoice finance companies provide businesses with the vital cash they need upfront to build, grow and, in some instances, survive.
The invoice finance market also plays a crucial role in combating the common practice of later payment, meaning that instead of having to wait 90 days to receive payment for the invoice raised, businesses can unlock the cash they need straight away. But, let’s look at some of the issues raised:
A regulated marketplace
The invoice finance market is regulated by the Asset Based Finance Association (ABFA), which has its own standards framework, including a code of practice and a clear and independent complaints process.
The majority of providers are members of this body, and the association stipulates that clients must be dealt with in a clear and transparent manner. This primarily applies to the levying of fees in a bid to ensure customers are treated with the utmost fairness and respect.
This premise establishes the basis for the way in which most invoice finance providers operate. Adequate notification and explanation of any fees being levied is a cornerstone of the partnership that exists between all types of businesses and invoice finance providers.
Get clarity on hidden fees
Reputable providers are not only completely transparent about charges and working practices but seek to offer an essential partnership for their clients. There are fees associated with some invoice finance products, however. These should never be hidden and should be clearly documented at the outset of any agreement.
The market has also recently seen a shift to simple straightforward products which offer solutions for one small fee. Businesses therefore need to appreciate that this form of financial assistance, as well as other routes such as crowdfunding, are completely legitimate alternatives to traditional bank loans.
SME owners that have been refused a bank loan, because their ventures are viewed as too high-risk, may have little knowledge of other viable finance options like these.
Incorrect statements serve only to deter businesses away from using these alternative options. They must explore all of their available options and look beyond their bank rather than fall into the trap of using an unauthorised overdraft facility, which can cost them as much as 27 per cent in interest charges.
Setting the record straight
The fact is that many SMEs rely on invoices being paid on time to cover their overheads, invest in new plant and machinery or hire new staff. Options such as invoice finance provide a simple solution for businesses to unlock capital rather than waiting to be paid, and there is no reason why any business should fall victim to hidden fees.
ABFA has predicted that asset-based lending to UK and Irish companies will reach £20bn in 2015 and 80 per cent of that sum will be raised through invoice finance. Independent financial providers are now supporting more UK businesses than ever before and invoice finance has become a crucial source of finance, particularly for SMEs.
John Atkinson is head of commercial business at Hitachi Capital Invoice Finance