Invoice financing is something that can make a huge difference to your cash flow issues, but it’s also something that many business owners don’t know much about.
With over £3 billion in alternative finance reaching UK businesses every year, there’s no doubt that money is available – it’s just knowing where to look for it that’s the hard part. Invoice factoring and invoice discounting are two particular types of finance that could help you to get on top of your business books. They might be suitable if you’re tired of waiting for clients to pay what they owe, or if you’ve perhaps been a little too generous with your payment terms, and they could help to improve your cash flow.
If turning your business’ finances around sounds appealing, here are just some of the ways invoice financing could help you to achieve that goal.
What is invoice financing?
Before we can look at the pros and cons of invoice financing, it’s essential to grasp the basic principles involved. Invoice financing involves selling your outstanding invoices to another company, who will pay you cash straight away without the need to wait weeks or even months for your clients to cough up what they owe.
In most cases, the finance company then takes responsibility for recovering the debt which they now own – leaving you with the time and resources to get on with growing your own business. There are various other elements in play when a finance company buys your outstanding invoices, but the basic principle remains the same and it could help you to take control of your finances with dependable payments that are made on time, every time
Quick and easy access to cash
When you invoice a customer, it’s likely that you won’t really have an accurate idea of when the money they owe will roll in. As we mentioned before, standard payment terms can range from 15 days to several months, your business could be left in a financial quandary with no real obligation on the part of the purchaser to make payment until the last minute.
At the end of the day, standard invoicing practices can be bad for business. This is because businesses need money to survive and without adequate cash flow it’s impossible to pay suppliers, employees and even the rent or mortgage. With invoice financing, you can be sure that you’ll get what’s owed to you with time enough to pay off what you owe. Invoice factoring helps businesses to survive, and it takes the pressure off of embattled directors who don’t really have the time to chase up outstanding payments.
Reduce your exposure to bad debt
Debt is a dirty word in business, but it’s something we all face and it can spell disaster for the firms left to pick up the pieces. There’s no escaping the fact that customer defaults can leave a company in turmoil. There’s always the option of taking legal action against your debtors, but that risks damaging business relationships and it doesn’t fix any cash flow issues arising from the non-payment.
If this is an issue that affects your business, invoice factoring could help. By letting these companies take on the responsibility of chasing bad debt, you’ll not only get the money you’re owed but also save on costly efforts to recover defaulted invoices. It could make your cash flow steadier, and reduce any animosity between your business and any customers that are potentially suffering from their own financial issues.
It doesn’t have to be expensive
One of the best things about invoice factoring is that it doesn’t have to be expensive. Whilst other forms of business finance can come with ultra-high rates and even unwelcome terms, invoice financing is generally affordable whilst conferring the serious benefit of guaranteed cash flow.
As with other forms of finance, the best policy when it comes to finding an invoice factoring is to shop around for the best deal. Using Business Comparison, you can compare the rates of top invoice financing providers to release as much as 100% of your outstanding invoice book value.
Offering the chance to secure your own business against financial problems elsewhere in the supply chain, invoice financing truly is a tool that business owners ought to put to good use. By getting the best deal and using it to balance your books, you could save on stress and perhaps even find yourself better off.