Cash flow is the lifeblood of any business. It is all about timing – the books and outlook can be good, but many small to medium businesses experience cash gaps between delivery and payment. Slower debtor payments or extended payment terms inhibit a business’s ability to invest, exploit larger opportunities or simply manage day-to-day costs.
Increasingly, new and growing businesses are using alternative finance tools – tools that support business performance by streamlining cash flow. Invoice finance is a leading example.
Invoice finance is also known as debtor finance, invoice discounting, factoring, cash flow finance or receivables finance. It is a funding solution where a business sells one or more of its current invoices to a financier to secure cash flow, without the requirement of real estate security.
A growing finance alternative, invoice finance is increasingly regarded as a strategic and versatile cash flow funding tool and is utilised by start-ups to larger businesses.
Three steps – the invoice finance process:
– The business invoices their client;
– The business receives up to 80% of the invoice value immediately rather than waiting up to 90 days for their client to pay. This can be completed on a full turnover or an invoice by invoice basis; and
– The remaining 20% less a fee is returned to the business when their client pays the invoice.
Invoice finance can be strategically used to inject cash into a business for a variety of purposes including:
– Funding business growth i.e. contract mobilisation and early delivery
– Smoothing seasonal cash flow
– Asset finance deposits
– Mergers and acquisitions.
Cash flow is more often than not, the determining factor in business performance and success. Smart use of invoice finance is a proven tool for business that can deliver both options and opportunities.