Invoice Finance (be it Invoice Discounting or Debt Factoring – which we will come back to shortly) is about one thing – releasing cash tied up in Invoices that haven’t been paid yet. This cash can be used to help take the pressure off your cash flow – if that’s caused by a lack of sales or too many sales . As a growing business you will be aware of the dangers of over-trading and the risk of failure associated with them.
Your business is growing, you want to keep that momentum going. For small and medium sized business, this can present a whole new set of challenges, challenges that the larger companies just don’t have.
Not least of these challenges is how to finance your business growth.
For a small or medium size business this can be particularly difficult, in fact for some it can result in the business failing through over-trading, as they don’t have the trading history or assets to justify a large lending facility from the bank.
The dangers of overtrading
Over trading is caused when you are taking orders (making sales) that you can’t finance the completion of. In practical terms this means that you take an order, but can’t satisfy the orders until other customers invoices are paid as you don’t have the cash flow. If these customers take 60 or 90 days to make their payments then you can lose the orders. This then puts a block on your growth.
If you had the cash from the other invoices, you can satisfy the orders, raise the new invoices and grow your business.
Many businesses fail to reach the lofty heights they could do due to a lack of ready cash flow.
Invoice Finance solves this problem.
As Britain moves out of it’s recession, business can feel the first signs of growth (been a long time coming hasn’t it). Given the recent problems banks have had, the are moving their business customers towards invoice finance more and more.
Even for banks, Invoice Finance is becoming the finance solution of choice. From a purely financial perspective it solves the problem of over stretching the credit line as you can only borrow as much as you are owed.
As business owners are still wary of some less than ethical approaches to lending and so are unwilling to put their home on the line, making it easier to get businesses to sign up to.
Types of Invoice Finance
Invoice Finance comes in two main flavours.
- Invoice Discounting
- You chase the outstanding invoices with Invoice Discounting. This maintains the relationship between you and your clients, but it does increase your work load.
- Debt Factoring
- The lender chases the outstanding payments. Debt Factoring is the most popular of the two flavours, probably because it means less effort on your part.
Advantages of Invoice Finance
For a growing business the main advantages are:
- You can free up time from credit control
- You don’t have to wait to be paid on invoices
- You clients will have regular credit checks – at no cost to yourself
- No need to put your house on the line
- Truly flexible lending – the amount you can borrow grows as you grow
Is Invoice Finance right for you?
Although Invoice Finance is becoming seen as the ideal funding solution for many businesses, it isn’t right for everyone. In brief Invoice Finance is likely to be right if you:
- Are a Limited company
- Have a turnover greater than £50,000 p.a.
- Deal with other businesses
- Invoice once your work has been completed
How it works
As you raise invoices you upload them to a lenders website. The lender approves them (usually within 24 hours) and arranges for the loaned money (normally 85%) to be transferred to your bank account. Once the Invoices are paid you have the balance of the money transferred (less any fees).
What happens when you use Invoice Finance
Our clients tell us that the main difference they notice when moving over to Invoice Finance is the amount of time the system frees up so they can make more sales.
Invoice Finance works is at it’s best when you are using the free time it creates to make more sales – you make more money – we make more money. Everyone is a winner.
On a month by month basis little will change apart from losing your credit control. As you create invoices, you just send them through our website and we handle the rest. The money is ready to download to your bank account (normally takes 24 hours).
We do advise that you put a little time aside every month for invoicing, as there is a little more work to do on that front with Invoice Finance (but think of all the time you’ll save on chasing payments).
Of course not all businesses use Invoice Finance in a standard way. There are specific situations when you need something a little different. The good news is that this is usually doable (with a little effort). The typical request we see through are:
Spot finance – where you only factor one invoice
Balloon payments – where you are loaned more than you are owed in order to secure an order
Confidential Invoice Discounting – so your customers never know you factor your debts
Whatever your needs, there will be a solution to your financing woes, and we are here to help you find it to support your growth.
Why use us?
Our relationship with Factoring lenders means that we are able to offer better terms than you may get going direct or through another broker.
We are paid differently by the Factoring company’s. Most brokers get paid a lump sum for introducing a new client to a lender. We don’t we get paid as your turnover grows. So it is in our interest to ensure that your business is growing, and we will do everything we can to help you do that.
Even with the best will in the world, not business relationship goes right all the time. We offer a free-to-clients mentoring service in order that the relationship with your lender is maintained (and in most case improved). Should you still not be happy we will help you move provider, again this is a free service.