Invoice discounting is a business funding option that allows businesses to borrow money against the…
5 Common Invoice Discount Finance Mistakes to Avoid
If you’re in business, chances are you’ve dealt with invoice discount finance loans at some point. These loans can be a great way to get access to the capital your business needs to grow.
However, they aren’t always easy to navigate and there are plenty of pitfalls that can keep your business from getting the money it needs.
In this article we’ll cover five common mistakes people make when borrowing money against their invoices:
- Not knowing your business’ financial goals
Knowing your business’ financial goals is crucial to making sure that you are on the right track to achieving them. By knowing what you want from a loan, it will be easier to identify the right loan for your business. You can also use this information to decide how much money to borrow and when it’s time to re-evaluate a lender or loan type.
- Not using a loan for long-term growth
You should use your loan for long-term growth, not to pay off debt or recurring expenses. You can use it to fund one specific goal, and then pay it back over time. If you need to pay off debt or recurring expenses, take out a line of credit instead of an invoice discount finance loan (a line of credit is just like a loan but without the interest).
- Not having a plan for the money you’ve raised
Once you’ve raised the money, make sure you have a plan for it. This is especially important if you’re using the funds to grow your business.
If you are planning on using this invoice discounting as an investment in your business, then it’s important that you know exactly how that investment will pay off and what its return will be. For example: if I were to take out a $100k line of credit with my bank at 9% APR (annual percentage rate), then I would need around $180k in sales over 12 months just to break even on my interest payments alone! That doesn’t leave much room for profit or growth–so what can we do differently?
- Dealing with multiple lenders at once
You may be tempted to take out an invoice discounting from one lender, then another and another. However, this is not a good idea because it can make things messy and confusing. It’s best to work with one lender at a time so that you know exactly what they want from you and how they want to help your business grow. Don’t use your business credit card for personal expenses.
- Failing to Specify a Due Date for Payment
The most common mistake is not specifying a due date for payment. This can be easily remedied by adding a line on the invoice that says “payment due date” and then specifying it in the body of your email or letter if you’re sending one out.
We hope this article has helped you to understand what invoice discount finance is and how it can benefit your business. We’re sure you will avoid such mistakes in future.