How can invoice finance help my cash flow when customers pay late?

Updated: 4th February 2021

When you have positive cash flow, it provides the foundation on which your business can develop and thrive. It’s a mainstay of business operations that allows for long-term growth, but a healthy cash flow can be hard to maintain without external funding. 

Cash flow finance plays a vital part in strengthening your business by providing a regular and uninterrupted source of working capital. It’s based on the value of your unpaid invoices, and has a relatively straightforward application process.

There are two main types of invoice finance in the UK – invoice factoring and invoice discounting. So would either of these products be suitable for your business, and if so, how do you access them?

Securing cashflow finance

Invoice finance is an alternative form of lending which doesn’t depend on a good credit rating, or lengthy approval process, as with ‘standard’ bank loans. You can obtain this form of finance relatively quickly in comparison if you have a strong sales ledger. Along with its inherent flexibility, this makes invoice funding a popular option for all types of business.

Begbies Traynor has professional contacts with more than 50 alternative lenders in the UK, many of which offer invoice finance. We can help you through the application process, and offer guidance on your best options.

How does cash flow funding work?

When you issue a sales invoice the financier releases a pre-agreed proportion, usually 80%-90% of the total amount within 48 hours. When your customer pays the invoice, you receive the remaining proportion minus the lender’s fee. 

Depending on which type of invoice finance you’ve chosen, the financier may also take over the administration of your sales ledger, including credit control. This aspect distinguishes factoring from invoice discounting, and can be extremely beneficial for companies without the resources to chase payments effectively.

What are the main benefits of securing invoice finance?

  • Cash flow finance provides you with a competitive edge, and avoids the common problem of late-paying customers
  • By securing regular amounts of cash for your unpaid invoices, your business can plan ahead with confidence knowing that bills will be paid on time
  • There is no restriction on the amounts of cash you can gain access to – it’s based solely on the value of your sales invoices, and grows along with the business
  • You can choose invoice discounting rather than factoring if you want your borrowing to remain confidential, and are comfortable in chasing customer payments in-house
  • You can react quickly to changes in your market, as you have ready access to working capital
  • In freeing up the cash in your unpaid invoices, your business runs smoothly
  • Costs are agreed upfront with the financing company

What type of business might use cash flow finance?

Any type of business could benefit from cash flow finance, but small companies in particular will reap the rewards of having regular access to cash. Smaller limited companies generally find it more difficult to secure bank loans, especially if they own few assets, or directors are unable to provide personal guarantees.

Certain industries in particular could use invoice funding to grow and develop. Construction businesses, for example, suffer greatly from the problem of late payment, and the subsequent delayed receipt of cash.

Begbies Traynor can provide more information on invoice finance tailored to your business, and identify how it could be of benefit. Our licensed insolvency practitioners have extensive experience in commercial finance, and offer same-day consultations free-of-charge at over 70 offices around the country.

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