When looking for financial support there are many product offerings that business owners can turn too. Factoring and invoice discounting is an alternative product to your traditional bank loans and overdraft that really focuses on helping a business’s day to day cashflow.
Some of the benefits may be obvious, but to businesses who have not used invoice finance before there will be other benefits which would not have even been considered:
1) Improve Cashflow
By factoring your invoices, you will receive an immediate cash injection to the business. The sum of the injection is typically 90% of what is owed to your business by your customers via outstanding invoices. It is worth noting some funders can provide the full 100% funding minus their fee.
As well as funding outstanding invoices a factoring or invoice discounting facility will allow you to fund your future invoices providing ongoing cashflow support.
Unlike an overdraft where you have a fixed limit, invoice finance will grow with your business as you are releasing a % of your invoice. The larger your invoicing, the more money you will have available. This is perfect for business who may be seasonality or larger orders as where sales are greater it is likely that this business will need more cash in these times to fulfil orders.
2) Outsource your credit control
As well as providing you with the funding a factor will also support our business with following up on outstanding and overdue invoicing. It is not uncommon for a business owner to spend hours of their time chasing payment and, in some cases, employing a member of staff to do this full or part time. This cost is included in the cost of the facility so you can focus on running your business and not have to incur an additional cost of a credit controller. It is important to remember that credit control is not compulsory if you wish to maintain control you can look at other invoice finance facilities such as CHOCCS and Invoice Discounting.
3) Grow your business
By using invoice finance, you will be in a position where you can offer larger credit lines to your customers as you will be receiving up to 90% of your invoice immediately via your finance facility. If you are a business who has not offered credit before invoice finance will give you the flexibility to do this and grow your sales. It is always important to remember an invoice finance company will suggest what credit limits they deem suitable on each customer. They will not lend you money against a customer who is not creditworthy.
4) bad debt protection
When using invoice finance many businesses prefer to insure their invoices too. This means that if your customer goes bust any outstanding invoices owed will be covered by the factor eliminating your risk of being paid. In some cases, an invoice financier may suggest that bad debt protection must be part of the facility if you are providing a significant amount of work to one or 2 customers.
5) Access to Cash
Unlike many forms of finance, the focus for invoice finance companies is to look at the strength of your customers. This is great for newer business as it will allow you to access larger amounts of cash as overdrafts and loans are typically dependant on previous trading history. From date of inquiry, it is possible to have cash out the door to you within a couple of working days.
6) Cost of borrowing
Although you will have access to up to 90% of all your outstanding invoices it doesn’t mean you have to draw down the full amount. This means in months where you do not need as much cashflow support the cost of the facility will drop. Some business owners use invoice finance for peace of mind knowing they may not have an ongoing requirement but if they do, they have a pot of cash waiting for them.
7) Security
In some cases, no additional security is required to set up a factoring facility other than the invoice itself. If a business Is looking for a long-term relationship it is extremely likely that the lender will require a debenture but there are not always requirements for personal guarantees.
Every business faces its own unique challenges and at Compare Factoring we take the time to understand each business and what hurdles they currently face.
As a specialist invoice finance broker, we can add value in your search by providing you with independent support, access to lenders which you may not have found yourself and of course time.
If you would like to find out more on how invoice factoring, invoice discounting or selective invoice finance can help your business grow or manage cashflow give us a call on 01322 741 425 or send us an email to hello@compare-factoring.co.uk
Invoice Finance is a perfect way to help your business manage cashflow and to remove the headache of late payers. There are a number of ways that an invoice finance facility can be structured and it can be tailored to your preferences.
Why not try our “help me choose tool” to allow us to support you in making the right decision for your business in 4 easy steps?
