So you’re trying to stay afloat, just like so many other fledgling companies in the UK. But why is that? What’s the issue if people appear to appreciate your product and sales remain steady?
In many cases, the problem is cash flow, which is typically caused by the all-too-common problem of late payments. If your company is one of the many battlings to be paid in full and on time, you’ll need to find a strategy to promote quick payment, or at the very least get access to the funds trapped in your sales ledger’s books.
While the former isn’t always feasible, the second is often is via the process of invoice financing. Could invoice finance, an increasingly popular funding method for suppliers struggling with client payments, work for you?
What is invoice financing, and how does it work?
Invoice financing enables you to borrow money from a third-party lender based on your clients’ amount owed to you. It’s a financing option that will help your company’s cash flow while also enabling you to make payments even if you have late-paying clients on your records.
cash flow problems are one of the leading causes of small company closure in the UK. Therefore, it’s a financing alternative that’s exploded in popularity in recent years.
Advantages: This is a simple approach.
It allows companies to control their money allowing extended terms for clients to have longer payment periods. Clients are pleased, and the company has a healthy cash flow.
However, it’s important to remember that there will be expenses to deal with. If an invoice is not paid, the expenses may quickly mount up, perhaps costing the company more in the long term.
Why would a company go for invoice financing?
When a company uses invoice financing instead of a traditional loan, lenders generally prioritize and concentrate on the quantity of money owing to the company rather than its amount. As a result, whether your company’s income is poor or it has several outstanding obligations, your request for invoice financing is more likely to be approved than a bank loan.
Because invoice settlement might take time, having this money allows a company’s cash flow to remain uninterrupted, which would create production interruptions and long-term concerns.
How can a company become eligible for invoice financing?
While there are a few things to think about, there aren’t many restrictions for firms to qualify. When inquiring, consider the following steps:
Most significantly, you’ll need to be a business that trades with other businesses (B2B) rather than consumers. If you’re a limited corporation with industry-standard credit conditions, you’ll also be eligible.
To consider financing these bills, lenders may need a minimum quantity of monthly invoices issued to your customers. Businesses with annual revenue of at least £50,000 are also more likely to qualify.
What is the mechanism behind it?
While the invoice financing process differs from business to business to the next, there are a few common processes.
Before making an offer, the invoice finance company will want to understand and collect information about your company’s essential financials, operations, and structure. Once the financier is happy with your track record, they’ll make you an offer to purchase your invoices and handle them as if they were their own. This means the bills are essentially off your hands, and the lender is responsible for collecting payments and resolving any future disputes.
Of course, this comes at a cost to you as a company, and invoice financing may be rather expensive if you’re seeking a deal on a large number of invoices and customers. Most invoice financing arrangements include service and discount fees, which will cut into your potential profits. Naturally, comparing the cost against the benefit of an invoice financing solution will be a major concern for your company.
What role does it play in the corporate expansion?
Invoice financing may be a big facilitator of company development because it improves cash flow for organizations that would otherwise struggle to create a consistent supply of funds. Businesses with restricted and unpredictable cash flow have several challenges, including difficulty paying staff, restocking important items, and paying their bills on time.
These things are barriers to development, and a good invoice finance contract may provide you with cash flow that allows you to invest in and improve your firm.
Is it, therefore, a viable alternative for your company? If you’re having trouble with cash flow and late payments, it’s worth investigating – the question is if the cost of invoice financing is worth it for your company.