Cashflow is the lifeblood of every enterprise. Maintaining a constant cycle of cash payments to the company’s bank account means bills get paid on time, the payroll is funded smoothly and tax liabilities are settled to the satisfaction of HMRC. When the cycle gets interrupted, as it surely must from time to time, the impact can be stressful and embarrassing. If the shortfall is not quickly bridged, the temporary nuisance can develop into a full blown management crisis. Having access to the means of providing fast short term finance can prove the difference between a quick fix and a painful and protracted recovery process. Cashflow management is a critical activity that requires constant vigilance.
What is Invoice Finance?
It belongs in the class of alternative finance products that are asset-backed. In other words, a company can typically draw down up to 90% of the value of its unpaid sales invoices where the invoices from the security for the cash advance. The company leverages the value of its assets as represented by its debtors’ book to generate cash inflow earlier than might otherwise be expected.
What are the Benefits of Invoice Finance for Cashflow?
Speed of payment is what makes this type of financing stand out from the run of the mill conventional options offered by high street banks. Because it is a short-term finance product, the decision-making process is fast and quickly generates cashflow. Once an arrangement has been made with an invoice finance vendor, cash advances against sales invoices are usually in the bank 24 to 48 hours after an invoice has been issued.
Invoice finance offers flexibility that a bank overdraft or loan usually cannot match. You can opt to leverage just occasional high-value invoices, or your entire accounts receivable ledger, or anything in between. As a company expands and its debtors’ book grows in value, do does the potential for larger cashflow injections increase.
Another major benefit is that invoice finance is not considered as debt on the balance sheet. The company taking advantage of it is merely speeding up the cash collection process.
How to Stabilise Cashflow Forecasts
Cashflow forecasting is just an expectation of what may occur in the future. There are so many factors outside a company’s control that can render it useless. For example, a client company may experience sudden trading difficulties meaning it does not pay you on time. Losing a major account can happen without warning even to the best-managed companies. All manner of unforeseen events can render a cashflow forecast useless.
Invoice finance can help stabilise the forecast in one of two ways: by bringing certainty to invoice payment dates or by keeping invoice finance in reserve as an emergency financing device to be deployed only when necessary. Both approaches result in a smoothing of the cash inflow cycle. Find out more about how invoice finance can help with cashflow forecasting.
Generating Quick Cashflow
Invoice finance companies advance cash against your invoices in two phases. The immediate, fast, payment can typically be up to 90% of the invoice value and can be in your bank account within 24 hours. When the client eventually settles the bill, the finance company pays the remainder of the invoice value, less an agreed service fee. The process is fast and uncomplicated, unlike approaching the bank to request a loan or to extend an overdraft facility. It is also worth bearing in mind that invoice finance typically releases up to three times more than a comparable overdraft facility, depending on the lending criteria of your bank. Add in the fact that banks are not renowned for looking after the finance needs of SMEs and alternative finance in the form of invoice finance becomes even more attractive.
Take the next step
The reason why you need to raise a cashflow injection is largely irrelevant. Every company needs one from time to time. The important thing is to take action to obtain the facts and to lay out your options in such a way as to enable you to make a quick decision. Take the first step by checking out our comparison engine here on this website. Alternatively, call us on 08000 24 24 51 for free advice from one of our experienced and professional advisors who will be happy to assess your situation and provide useful pointers.