Invoice Finance – Providing A Steady Recovery Amidst Economic Uncertainty

In the midst of economic uncertainty, invoice finance has been a steady and reliable source of funding for businesses. In recent months, we have seen an uptick in the number of SMEs using invoice finance to get the money they need to grow their business, as, despite the very real pressures on finances, many are beginning to feel more confident about investing in their future.

The End of Government Funding Initiatives.

Over the last two years, thousands of UK businesses have been helped by Government support initiatives, but that support has now largely stopped and the replacement scheme is perhaps not quite so “generous. This is a challenging time for viable firms to stay afloat. Banks also seem to be turning down additional finance requests from businesses and making it harder for businesses to reach the criteria to even apply.

Interest rate rises in 2022 so far have not posed a significant barrier for businesses, but investigating funding alternatives and how costs compare will no doubt be at the top of business owners’ minds. The good news is that there are other dependable and cost-effective financing alternatives available.

Invoice Finance – A lifeline for UK Businesses

As the UK economy has begun to recover, so has demand from businesses for funding through invoice finance services. Trends show that businesses are cautiously optimistic about the future and are ready to invest in their growth.

In these uncertain times, businesses have to be more nimble and make decisions quickly in order to stay ahead. Invoice finance is an excellent way to help give businesses a little breathing room when it comes to cash flow.

Through invoice finance, a company sells its accounts receivable to improve its working capital. It is as a facility directly linked to the value of unpaid invoices and is a way for businesses to obtain immediate access to money due from their customers.

SME owners may use it to grow their business, develop new products, hire additional personnel, and improve overall cash flow. It also opens doors of opportunity by providing immediate funding in times of need. This approach offers businesses greater financial flexibility. Invoice Finance can also have significantly lower associated costs than those accessible through other forms of alternative lending.

Invoice financing is another way for businesses to acquire working capital without being beholden to their clients, bending suppliers, or incurring additional debt. Given the current levels of debt incurred by UK SMEs during the epidemic, this last point is particularly vital.

Benefits and Setting Up an Invoice Finance Agreement.

Invoice finance can be a great way to improve your business cash flow. It typically allows you to release up to 90% of the money tied up in your outstanding invoices, so you can reinvest back into your business and take advantage of new opportunities as they arise.

There are two main types of invoice finance: factoring and discounting.

With factoring, you sell your invoices to a lender at a discount, and they manage the debt collection process on your behalf. All aspects of your sales ledger are managed, from the moment of the initial invoice being raised to the point when the debt is paid. Generally, there is also an online system that allows you remote access to your ledger and control account, enabling you to remain fully appraised of your position at all times.

With discounting, you have two options, disclosed or confidential. With disclosed discounting, you retain control of your ledger management whilst receiving the benefit of prepayment against your debts. Invoices you send will be required to include a notice of assignment confirming the funder’s involvement, and monthly statements are sent to the debtors to update them on the position owing.

With confidential discounting, as with disclosed invoice discounting, this facility allows you to keep control of the ledger management procedures while receiving the benefit of prepayment against debts. However, with this type of facility, your invoices will not carry a notice of funder involvement and no monthly statements are sent to your customers.

Invoice Finance Benefits.

Firstly, let’s dispel the misconception that invoice financing is the last resort for businesses seeking to raise money. It is rather a vital aid to maintaining a stable and healthy cash flow. In fact, it should be the first option, particularly for growing businesses. Many all over the UK are now benefiting from:

  • Access to cash quickly.
  • No need to wait 30, 60, 90 days or more for customers to pay.
  • The ability to free up time spent chasing late payments.
  • Improved business cash flow and working capital.
  • Easy to access with a straightforward and short application process.
  • It’s flexible; you can often choose which customers you want to factor.
  • Generally, no additional asset or collateral requirements.

Is my business eligible for invoice finance?

To be eligible for invoice finance, your business must:

  • Have outstanding invoices with creditworthy commercial customers for goods/services supplied.
  • Be able to provide accurate records of the invoice value, date issued and debtor details.
  • Invoices must not be older than 90 days.
  • Issue goods or provide services on a “sell and forget” basis.

Finding an Accredited Lender.

The next step is finding an accredited funder that suits your business needs. It’s important to ask these questions as a business owner before committing to an invoice finance agreement with a provider.

  • What information will you need from me?
  • How much can I borrow against my invoices?
  • Are there any restrictions on how I can use the funding?
  • How long does it take to get set up?
  • What is the process of getting started with invoice finance?
  • What will it cost? Are there any additional fees?
  • What are the consequences of not being able to repay an invoice finance facility?
  • Are you a member of UK Finance?
  • How do I know if invoice finance is the right solution for my business?
  • How can invoice finance help my business grow?

If you need to free up cash flow for investment or are searching for a solution to bridge the gap between your customers paying their invoices and you receiving the money, then contact us so we can find the right invoice finance solution for your business.