Maintaining healthy cash flow is a challenge for growing businesses in every industry that trade with clients on credit terms. For a business to keep growing and fulfilling their obligations to clients, there needs to be sufficient cash flow to maintain operations. This is where invoice financing can help. Invoice financing can significantly benefit the way you manage your cash flow. This is done by bridging the gap between the point at which you make a sale, and the time the payment is received from the debtor.
Here we’ll talk more about what invoice financing is, what the advantages of it are to your business, and how you can apply for it.
What is invoice financing?
Invoice Finance releases cash tied up in outstanding invoices, allowing the supplier access to money before the customer makes a payment.
In today’s economic climate, some companies take full advantage of the repayment terms offered and it can take months for them to settle what they owe. This in turn leaves cash flow strained and suppliers left unpaid. Because of this, invoice finance facilities have become an increasingly popular form of providing short-term cash flow for the business-to-business sector to support business growth.
Invoice financing can be a useful tool for businesses that rely on a regular inflow of cash to operate. It helps to ensure that capital is available to pay wages and bills on time, whilst maintaining control over the business.
With invoice finance, businesses pay a small percentage of the invoice amount to the lender as a fee for borrowing the money. This makes it a lower-risk loan option, as repayments link to the invoices that you raise, meaning repayment is always in conjunction with you having made a sale.
How your business can benefit from invoice finance
The major benefit of invoice financing is that it allows a business to receive payment immediately for products/services provided and invoiced. This frees up cash that can be put back in the business, increasing turnover and profits more quickly.
Here are some of the ways that invoice financing can change the way you manage your cash flow:
1. Immediate access to cash without a loan
Invoice finance is different to a traditional loan in that it does not require a long term committed contract. You will also not carry the debt of it on your balance sheet as you would with a traditional loan.
2. The nature of repayments makes invoice finance a low-risk option
Invoice finance is a lower-risk option as it is not paid back until the original invoices are settled by your clients. At the start of your agreement, you will agree a fee amount with your lender (for example, 1.5%). This means that 1.5% of every invoice that is paid by a client goes to your lender.
There are no interest payments. In fact, needs to be paid at all to the funder. This is because the funder only collects their money from your debtors when the debtors pay their invoices. Businesses that use these services don’t have to make fixed-term repayments, which is great for cash flow.
3. No risk to assets
As invoice financing is an unsecured business loan in place of your invoices, you won’t have to offer up physical assets from your company.
4. Invoice financing supports business growth
Businesses need a steady cash flow to grow, and invoice finance supports growth in several ways.
Often, business owners spend a lot of their valuable time chasing debtors. Invoice finance takes away the need to do this, freeing up business owners to focus on acquiring new clients. Secondly, it makes it possible for a business to pay its suppliers, and consequently avoid supply chain constraints. It also allows the business owner to focus on marketing their business rather than fending off creditors.
5. Invoice finance gives your business quick cash
Compared to other types of business loans, invoice financing has a very quick turnaround. Business owners can apply for invoice financing quickly, with a minimal requirement for paperwork. Money can then be in the business account within 24 hours of receiving the information required.
Cash can be made available as soon as an invoice is issued. It can then be used to help grow your business, buy more stock or pay wages.
6. Invoice finance reduces the risk of overdue payments and bad debts
Another major benefit of invoice financing is that it reduces overdue payments from customers and bad debts which can cripple a business.
Invoice financing helps to eliminate this risk by conducting a credit check on your debtor, and they often take out insurance against non-payment. Invoice finance lenders know how to deal with customers who are likely to make their payments late or fail to pay completely, and they know how to recover the funds. This takes all the worry away from you as the business owner.
How to apply for invoice finance
Securing invoice financing for your business could be of interest to you, but maybe you’re not sure where to start. It can be difficult to find the right lender for your business. However, this is where an experienced financial facilitator can really help.
PMD have been securing invoice finance for their customers for years. We work with businesses across all types of sectors to help facilitate their growth.
PMD has access to over 50 invoice financing companies in the Invoice Finance market. PMD’s dedicated team will take the time to understand your business and find the right funder to support your growth plans.
Already have an existing Invoice Finance facility? PMD can benchmark this against what’s available in the market. We can improve on this by either reducing costs or increasing funding and in many cases, we can do both.
If you’re interested in invoice financing and would like to discuss this further, contact PMD today for all the information and advice you need. Alternatively, follow us on LinkedIn to keep up to date with the latest industry news and updates.