Alternative lending is different than traditional bank loans
Invoice financing is considered as an alternative lending strategy. Businesses that pursue this option should research the differences between traditional bank loans and invoice financing.
One important difference between traditional lending products and invoice financing is regulation. Invoice financing is not currently regulated under the Australian Securities and Investments Commission (ASIC) Act 2001.
However, an explanatory statement for ASIC Corporations (Factoring Arrangements) Instrument 2017/794 noted that financial companies that engage in factoring should:
- Provide their clients with written copies of their terms and conditions; and
- Have an internal dispute resolution process they adhere to when problems arise.
Companies that pursue invoice financing should do so with a reputable company that has the requisite technology and knowledge to carry out transactions securely and professionally.
Another critical distinction is the time it takes to obtain funds. Traditional bank loans are long processes that involve credit checks and long waiting periods before funds are delivered to the borrower. With invoice financing, payment is nearly immediate – typically within 48 hours of the supplier providing the financier with their invoices.