When considering an alternative source of short-term finance such as invoice finance, the temptation might be to go with a lender you already know and work with, such as your bank. If you have developed a strong working relationship with your bank over time, this may seem like the sensible decision to make, and in some respects, it would be.
However, while there may appear to be a number of advantages associated with working with your existing lender, there are also some important considerations to take into account. Given the surge in popularity in invoice finance in recent years and the number of specialist lenders that have entered the market, you should think carefully before you make your choice.
These are the advantages and disadvantages associated with invoice financing through your bank…
Advantages
- Economies of scale – As a larger organisation than the invoice finance specialists, your bank may be able to offer you more competitive rates and fees than the smaller providers. Once an agreement has been reached, you also have the reassurance that you’re working with an established institution rather than a smaller company.
- Bank regulation – Regulation in the banking sector and the focus on transparency should on the face of it lead to a standardised level of service.
- A direct point of contact – The size of a bank and the number of client and relationship managers they have could mean you receive a direct line of contact when you have questions you need to be answered.
- Consistency and access to additional services – Keeping all of your funding with the same lender can help your business run smoothly and increase your access to additional services over time.
Disadvantages
- Too much control – Having all of your finance agreements with the same provider will give the bank significant control over your business. Any changes the bank underwriters may make could cause severe damage to your company or even lead to closure. As the bank will require a debenture this effectively gives them the right to take control of your company if they feel at risk. Having other accounts apart from invoice finance will increase the bank’s exposure greatly so increasing the risk of the bank taking control.
- Other accounts can impact your invoice finance agreement – Other accounts you have with the bank that are not relevant to your invoice finance agreement could detrimentally impact your position. This would not be the case if you worked with an independent invoice finance provider.
- Slow to react to market changes – Some of the larger banks are renowned for being slow to react to market changes. That means you could miss out on the additional services or fee reductions you may receive from a smaller independent provider.
- Less agile – The larger banks can be slow to respond to situations and may not always be able to provide the level of service you need. If your growth is reliant on your ability to adapt quickly to changes, a bank invoice finance provider may not be right for you.
- It’s less flexible – Invoice factoring with a bank is likely to be less flexible than the service you would receive from a specialist provider. For example, the bank may not allow you to factor individual invoices. You may also wish to sell your invoices to individual lenders based on the fees and advance payments they offer, rather than sticking to a single company.
Need Advice?
Not sure which is the right invoice finance partner for your business? Or perhaps you’ve received an invoice finance quote from your bank but would like to see what kind of deals are available elsewhere? Please call 08000 24 24 51 to discuss your options with one of our experts or compare the UK’s invoice finance providers today.
