Cash flow is key to any business and without it you are dead in the water. It’s absolutely essential to have good cash flow to run a successful business. You will be hard pushed find a business person who would disagree with this.
Unfortunately cash flow for some businesses and in certain industries is a real problem. If your clients do not pay you within 30 days or you have a business where you have a large weekly expenditure cash flow can be a problem.
There are many solutions to cash flow problems and one of them is invoice finance. This is a finance solution which pays you the value of your invoices before they are paid. You can usually receive payment within 48 hours and often much sooner.
Invoice finance comes in two forms, invoice discounting and the more common solution invoice factoring.
With invoice factoring the finance company will pay you between 80% - 95% of the value of the invoice within 48 hours of invoicing the client. The finance company will do the invoicing on your behalf and they will chase the payment of the invoice. This both helps cash flow and takes away the burden of chasing your payments.
Invoice discounting is very similar with the main difference being that you chase the outstanding debts. It is purely for helping with cash flow and not for helping you with the administration and time consuming job of collecting unpaid debts.
There are two charges associated with invoice finance. Firstly you will be charged a finance fee. This is a percentage of the money you draw down. Typically this is between 1.5% and 2.5% above the base rate of the Bank of England.
Secondly you will be required to pay a service fee. This is typically between 0.01% and 1% of your turnover.
When shopping around for invoice factoring make sure you do not shop purely on price. Although this is important you need to also make sure that the service you have will meet your business needs and requirements. And yes it is important to shop around as most invoice factoring companies will expect you to sing up to a contract, so it is important to find the invoice finance solution that will best suit your business.
Invoice factoring has the following benefits:
Invoice factoring has been snubbed by many in the past, but if you are having trouble getting the necessary finance through the more traditional channels then it may be worth looking into.