4 Invoice Financing Red Flags You Need to Know

May 3, 2022

So you think receivables or invoice financing might be an ideal tool to help your business optimize working capital and reduce reliance on high cost financing.

As noted in previous blogs, receivables financing is a great way to take advantage of your organization’s biggest asset, its invoices. It’s a highly competitive financing option that is used by S&P 500 companies.

But like every financing option, an effective solution requires careful assessment of opportunities available. However, not all invoice financing partners are the same, and it’s important to be aware of unethical business practices. When looking for an invoice financing partner, look out for these red flags:

1. Hidden/high fees

Carefully review invoice financing contracts to make sure you’re clear on potential fees, penalties and contingencies as well as how those fees are tallied.

2. Unreliable credit facilities

Invoice financing is a great way to optimize working capital and reduce reliance on inflexible financing such as loans. However, the value of this financing option is dependent on the strong credit of your invoice financing partner. Check any potential partners’ business financials. For instance, Constrafor is backed by a $250 million credit facility, not a bank or lending institution.

3. Missed payment liability

Verify who assumes risk if payment from a general contractor is not received. Is it your firm or your invoice financing partner? In some invoice factoring cases, the borrower takes on the repayment risk. At Constrafor, we take on the risk of repayment.

4. Trustworthiness

In today’s hyper cyber security times, having a secure website and secure payment processing portal is essential. Make sure your invoice financing partner has a best-in-class cyber security backbone.

Invoice financing can be a powerful tool to help grow your construction business, but it’s important to choose a reliable and trustworthy partner. To learn about choosing the right financing partner, read our top 3 tips for  developing a successful invoice financing partnership here.

Constrafor’s Early Pay Program is the only construction-first invoice factoring service helping specialty contractors can take control of their cash flow and turn receivables into a liquid asset.

Interested in learning more about Constrafor’s Early Pay Program? Schedule time with an expert.