How to compare invoice finance providers and quotes

Comparing invoice finance providers is harder than comparing loans, because each quote bundles several fees and contract terms in a different way. This guide is for business owners holding two or more quotes, or about to ask for them, who want to know which is really cheaper and which terms could cause problems later. Smart Funding Solutions approaches providers on its panel and lays their offers out side by side, but the checklist below works whether or not you use a broker.

If you are new to the product, start with our invoice finance hub, which explains factoring, discounting and how a facility works.

01Step one: be sure you are comparing the same product

A factoring quote, which includes credit control, will naturally cost more than confidential invoice discounting, and a selective invoice finance quote is priced per invoice rather than per year. Before comparing prices, check each quote for:

• Facility type: factoring, invoice discounting or selective.
• Whole turnover or selective: must every invoice go through the facility?
• Recourse or non-recourse: is bad debt protection included, optional or excluded?
• Confidential or disclosed: will your customers be told?

02Step two: add up every fee

03Step three: compare terms, not just price

• Advance rate: the percentage of each invoice paid up front, and whether it applies to all customers.
• Concentration limits: caps on funding against one customer. If one customer makes up a large share of your sales, this can reduce what you actually receive.
• Eligible debts: whether overseas, older or part-disputed invoices are funded.
• Contract length and notice period: how long you are committed and how much notice you must give.
• Personal guarantees and indemnities: what directors are asked to sign.
• Service: online reporting, integration with your accounting software and who you deal with day to day.

04A worked comparison

Imagine two quotes for the same whole-turnover discounting facility. Provider A has the lower service fee but a high minimum fee and a long notice period. Provider B has a slightly higher service fee, no minimum and a shorter notice period. If your turnover is steady and growing, A may be cheaper over a year. If your sales are seasonal, or you might switch to a bank facility within a year, B's lack of a minimum and shorter exit may cost less in practice. Running both quotes through a month-by-month forecast of your own invoicing shows which way it falls.

05Questions to ask every provider

1. Can you cost a full year using my own turnover, invoice sizes and customer payment times?
2. Which of my customers or invoices would you not fund, and why?
3. What is the minimum term, notice period and full cost of leaving?
4. Which fees are charged on turnover and which only on money drawn?
5. What will directors be asked to guarantee?
6. How quickly are advances paid once an invoice is uploaded?

06Pitfalls to avoid

• Choosing on the discount charge alone, when the service fee and minimums drive most of the cost.
• Signing a long whole-turnover contract for a short-term need that selective finance would cover.
• Missing a concentration limit that makes the real advance much lower than the headline rate.
• Overlooking the notice period, then paying fees to leave when you outgrow the facility.

07What providers look at

• The credit strength and payment record of your customers.
• Your turnover, payment terms and how spread your sales are across customers.
• Your sector; some, such as construction with staged applications, need specialist providers.
• Your trading history, accounts and credit profile.

08Invoice finance or another facility?

An overdraft has a fixed limit that does not grow with sales and can be reviewed by the bank, but it is simpler and may be cheaper for small, occasional needs. A revolving credit facility or short-term loan may suit if you do not want the ledger reporting that invoice finance involves.

09How we help you compare