The need for fashion businesses to be able to find funding is undeniable.
Invoice discounting may be the answer for some. However, this form of funding has its own ‘cost’ for businesses that undertake it.
The starting point for a business to consider is whether it has already given its book debts to its bank as security for a bank loan overdraft. Equally, will existing agreements with finance houses be breached by entering into an invoice discounting arrangement?
Even if there are no pre-existing charges or agreements to prevent a fashion business from discounting its invoices, consideration should be given to whether the arrangement proposed will cover all book debts, or only some. Who makes the choice as to whether a particular invoice is discounted or not?
Before commencing any invoice discounting it’s also important to determine whether you will be required to take back any unpaid debts. If so, after what period can you be required to do so? More importantly, will you be able to afford to?
Without being sure that invoice discounting works for it, a fashion business may simply have exchanged a funding problem for something far worse.
- Stephen Sidkin, Chair of the Fashion Law Group at Fox Williams LLP