The secret to selling more invoice finance is very simple – listen to the customers and give them what they want. Hence I have set out below our interpretation of what they want based on the feedback we have received from the thousands of potential invoice finance customers that we have spoken to through our brokerage activities:

• Flexible contracts – customers are often put off by extended contract periods and long periods of notice of termination. They respond to very short termination periods, so that they are not tied in if they choose to leave. In practice they rarely leave anyway, but if they do, they want an easy, simplified transfer process to support them in moving providers.
• Reduced cost version of invoice discounting – many customers are comparing the cost of invoice discounting with an overdraft or loan. A low cost version of invoice discounting would enable invoice discounters to recruit huge numbers of customers that might otherwise use an overdraft or loan. Whilst the argument that “invoice discounting releases more funding than overdraft” is often true, the price premium often makes invoice discounting unattractive to the customer.
• Widen the pricing differential between factoring & invoice discounting – it often doesn’t sufficiently reflect the significantly lower workload for the invoice discounter that the customer perceives invoice discounting to involve.
• Separate funding from credit limits – increasingly the funding given against debtors has become linked to the credit limit (for bad debt protection limit) that can be written on the debtor. This prohibits many customers from using invoice finance, as credit limits in the current climate are often insufficient to release enough funding.
• Small business pricing – for the smallest of businesses i.e. those turning over less than £150K pa, even minimum service charges of £3K per annum are hard to afford. A lower cost model for the smallest businesses would open up a large segment of the market.
• No premium for selective products – some customers are interested in selective invoice finance where they can select certain debtors to receive funding against, rather than their whole, ledger. A few financiers will allow this but it is often charged at a premium which puts customers off.
• Modular pricing – customers appear to like the idea that they pay for a core service e.g. funding and then they can bolt on further services, in some cases for just the short term, for example collections support.
• Remove hidden charges – customers are often put off by the perception that there will be unexpected “hidden charges” – this could be addressed by simplifying the pricing approach. Many customers find an “all inclusive” rate attractive.

These are some of the issues that are barriers to customers buying factoring and invoice discounting products. Hence they are partially responsible for the overall contraction of invoice financing client numbers.

Some of these ideas may not be palatable from an invoice finance company’s perspective but nonetheless these are the things that customers seem to want. If the factoring and invoice discounting companies were able to address some or all of these issues it would lead to a dramatic expansion of the invoice finance market.

Article contributed by Glenn Blackman MBA MCIM. Glen writes regarding invoice finance and related matters at: www.glennblackman.co.uk and is the Managing Director of Cashflow Acceleration Limited, a specialist invoice finance brokerage.

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