Drawbacks
- In some industries, financing debts can be associated with a company that is in financial distress. This can result in suppliers becoming reluctant to offer credit terms, which will reverse many of the benefits of the arrangement.
- Invoice discounting is an expensive form of financing compared to an overdraft or bank loan.
- As the finance company takes a legal charge over the sales ledger, the business has fewer assets available to use as collateral for other forms of lending - this may make taking out other loans more expensive or difficult.
- Once a business enters into an invoice discounting arrangement, it can be difficult to leave as the business becomes reliant on the improved cash flow.
Read more about this topic: Invoice Discounting
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