What Are The Risks In Invoice Financing?

 Just like all forms of borrowing, invoice financing is subject to risk. Unlike your everyday personal loans and credit cards, however, which are secured against tangible assets (your home, for example), unsecured loans like invoice finance are secured by future payments from your clients. 

If you can’t make those payments on time – either because your business has closed down or because it’s gone bust – then you could lose all of that investment cash before it hits your bank account. 

In other words, if an accounting error means you overstate a client’s payment due or if that payment falls victim to an unexpected event – say a dispute with a client or perhaps an administration error within your firm itself - then investors might not get their money back at all. 

To mitigate these risks, it’s important to choose a reputable invoice finance provider. One way to do so is by checking its status with one of many independent bodies including The Finance & Leasing Association or The International Factoring Association. 

Alternatively, ask for references from companies who have used them in the past and check out online reviews too. It’s also worth noting that invoice factoring comes with its own set of risks including those related to currency exchange rates and interest rates should you choose to borrow instead of sell on your invoices upfront. 

Whatever route you take, just remember that there are no guarantees when it comes to investing. Even when dealing with something as concrete as invoices!