Dispelling 5 Common Receivables Finance Myths

King Hammurabi - introducer of invoice finance

Introduced over 4,000 years ago, when King Hammurabi ruled over Mesopotamia, receivables finance is one of the oldest forms of commercial finance. The modern-day version of receivables financing can be traced back to the 1300s when money in Italy was offered against payment and delivery of grain. Fast forward to 2019 and the estimated volume of receivables finance sits around £2,923 billion.  

However, as with many things, receivables finance’s legacy and history has also tainted it with rumour and myth. For decades, the business funding market has been surrounded by negativity. For the most part, this is fuelled by the inflexible terms, ludicrously high interest rates and bias motives of traditional lenders like banks. This article addresses and dispels 5 of the most common myths about receivables finance. 

Myth 1: Receivables financing is the last resort for struggling companies, who have no other options available to them.  

A common misconception is that using receivables finance shows signs that a business is in trouble. However, the truth is that if your business is looking to expand and grow, particularly into new overseas markets then receivables finance is ideal. The stigma once surrounding invoice finance has gone. Most companies now see it as a positive tool to boost their working capital through growth.  

Myth 2: Receivables financing gives the wrong impression to your customer. 

With the stigma removed, the reality is that most customers have no issues with suppliers that use receivables finance. What better way than to say your business is poised for growth or to offer credit terms than by having the support of a financial institution to underpin your strengthened financial position. If you are worried about disclosure, then some funding providers offer a confidential service, however, this will solely be on a whole book basis. 

Myth 3: Using receivables finance locks you in.  

Cue the arrival of individual receivables finance. As the name suggests you can choose to finance one-off receivables on an as needed basis. Rather than tie SMBs into lengthy and restrictive contracts, businesses can manage cash flow through a facility that is underpinned by complete flexibility.  

Myth 4: Financing receivables gives away your control  

With the flexibility provided by individual receivables finance, you remain in complete control of the receivable process, raising finance and most importantly your customer relationships. In most cases, using a receivables financing provider will help reduce your Days Sales Outstanding (DSO) and the amount of time your staff dedicates to account receivables management. 

Myth 5: Receivables finance is expensive  

Receivables finance may indeed cost more than traditional funding, such as a bank overdraft or loan, but it has better cash flow benefits and brings more than just funding. With individual receivables finance you also get a flexible solution that includes credit control expertise and bad debt protection in the form of credit insurance. It is the only funding option that is available that will generate the funds to support growth with a facility that grows alongside your business.  

So contrary to popular myth, most businesses use a factoring facility to expand their business, not just to survive. Whether structuring your business to accommodate rapid growth, seasonal demand, or expansion into new markets; receivables finance really has become a viable, alternative source of funding. You can unlock access to much-needed cash flow, generating further growth for your business. 

Start your cash flow management journey today.   

If you would like to know more about Receivables Finance and how it might benefit your business contact us today.


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