Invoice Financing; is it a Good Option For My Business?

The key to stability and consistent profitability in most business areas lies in one (seemingly) simple thing: effective and efficient cash management.

Of course, anyone familiar with the reality of running a small business will know that keeping cash flow healthy and fluid is one of the biggest challenges of all. One that not only calls for constant care and attention but can also quickly eat into profits if not meticulously managed.

The trouble is many SMEs find themselves in a position where flexible and amicable relationships with customers make it difficult to keep on top of their own costs. Businesses often give their most important customers extended times to settle their invoices, during which the business is left short.

Hence, the more flexible and accommodating an SME is with its customers, the more problematic the whole thing becomes.

An Innovative and Affordable Solution

This is where invoice finance comes into play: A specialist financial service designed to bridge the gap between making sales and collecting payments.

With an invoice finance agreement, an SME can release the funds in their outstanding invoices in advance (usually up to around 80%) and repay their lender when the invoice is settled. The service is provided for an agreed fixed fee, which is deducted from the funds transferred from the lender to the SME.

Therefore, the answer to the question ‘is invoice finance a good option for my business’ depends entirely on the number of invoices you issue, along with how long you wait for them to be paid. If you encounter regular or occasional cash flow issues due to the pending payment of invoices from your own customers, then yes, invoice finance could be a great way to maintain healthy cash flow.

What Are the Benefits of Invoice Finance Over Conventional Loans?

Flexibility, accessibility and affordability are the three biggest points of appeal with invoice finance. While it may be possible to bridge temporary financial gaps with more conventional commercial loans, an invoice finance agreement brings several key benefits into play.

These include:

1.     Rapid Access to the Funds You Need

When you need a cash injection quickly, invoice finance can be just the ticket. Depending on your requirements and the lender you choose, it may be possible to put the agreement in place within 24 hours. You can then submit your customers’ invoices to your lender for near-immediate payment of the outstanding balances.

2.     You Repay Only When You Have the Money

Repayment of funds with invoice finance only occurs at the time your own customers have settled their debts, so you have the money on hand to repay your own debt comfortably. There are no fixed-term repayments or monthly instalments involved, making it much easier to manage your cash flow.

3.     On-Demand Cash When You Need It

Invoice finance adapts to the needs of the SME using it. You can submit more invoices to your provider as needed, or you can submit fewer invoices (or none at all) at other times. It is a hugely flexible facility with no requirement to enter into a long-term binding agreement.

4.     No Complex Qualification Criteria

Perhaps best of all, eligibility requirements for invoice finance services are fairly straightforward. You simply need to be able to provide proof of outstanding invoices, along with a generally amicable track record regarding outstanding payments to your company. The rest, including common issues like imperfect credit, may be inconsequential. Just as long as you can convince your lender of your ability to repay in a timely manner, you have a good chance of qualifying for a competitive deal.