Plan vs Reality – Managing Cash Flow in a Business Crisis

Plan vs Reality – Managing Cash Flow in a Business Crisis

Managing cash flow during a business crisis is never easy but despite this, it is something that many small businesses go through. You must prepare your cash flow plans in advance, plan for the pain of any problems that may arise and be prepared with contingency plans if things go wrong.

But when you are hit with a financial crisis, what do you do? Funding from banks or other lenders is not always easy to secure and can be a lengthy process with no guarantee of success at the end. However, invoice finance could be the answer you are looking for. It is viable, safe, quick to implement and flexible.
In this blog, we list common issues a new business faces that impact their cash flow and then how using an invoice financing facility will help you to manage it, so you don’t end up in an unstable financial situation.

Common issues new businesses face.

The following pain points may lead a small business into a financial crisis:

  • Repayment of other debts coming due
  • Unexpected/unplanned bills.
  • Essential equipment failure that has to be quickly replaced
  • Sudden loss of a major customer
  • Long terms staff sickness or extended leave of absence
  • Supply chain issues
  • Poor financial planning

All the above issues will have a significant impact on a small business. This is where ensuring that your business has a healthy and stable cash flow is imperative and this is when invoice finance comes into action!

What is invoice finance?

Many businesses don’t know about invoice financing or have misconceptions about the options available and how it works. Invoice finance provides safe and flexible help that many small businesses need to maintain stability during times of poor cash flow, to ensure that their business continues to flourish.

Invoice finance is a specific type of asset-based lending, which allows you to have an advance against the value of unpaid invoices. Simply put, the lender allows you to access an amount equal to a percentage of your unpaid invoices (usually between 70% and 90% of the total) before they have been settled by your clients.

Contrary to widespread belief you retain 100% of the invoice, but you pay a small fee for use of the facility – like you would on any financial product. Invoice finance is a tried and trusted way of helping businesses keep their cash flow healthy, with the ability to help the business grow. In the UK approximately 40,000 businesses regularly use invoice finance companies with some £21bn advanced.

There are two main types of invoice finance:

  • Discounting (disclosed or confidential)
  • Factoring

Discounting and Factoring are similar in how they provide funding, except with Factoring you have an additional service with credit control also provided to ensure that invoices are being correctly managed and freeing up more time in your business.

How can invoice finance benefit a small business and is it safe?

Deciding to choose an invoice finance option is a wise choice and ideal for small-medium businesses selling to other businesses on credit terms. It…

  • provides access to cash without the business having to sell inventory or other assets to pay urgent bills at a time or price that may not be right.
  • is a far more flexible option than traditional borrowing- providing finance that grows as you do.
  • means you don’t have to provide additional personal collateral which is often required when you take out loans from banks and other financial institutions.
  • has an application process and sanction (particularly with Partnership) which is quicker and less onerous than the Bank – typically a facility is agreed upon within 48 hours with the first drawdown of cash to you shortly after.
  • is an efficient and flexible way of borrowing money.

Factoring gives you access to the value of invoices before they are paid-typically within 48 hours of raising them and whilst most businesses have their whole turnover funded, you can elect to choose which customers your business would like to factor. The financier then provides the funding and manages every aspect of your credit control saving you time and money.

Safe, flexible, affordable and you choose when to use the facility and which invoices to factor.

If you were to find yourself in the midst of a business crisis, it’s important to have prepared your company for any eventuality. This is where invoice finance can help. It will provide you with access to funds when and how needed (even during tough economic periods) while still maintaining healthy cash flow levels – without high-interest rates or other hidden fees!

If this sounds like something you would like to explore further, please contact us today so we can talk about the pain points which may lead your business into a financial crisis and how using an invoice financing facility can be used as part of your overall strategy to manage cash flow better than ever before. We are the experts in this field and will help you plan ahead.