The research, which studied the financial situation of 500 UK SMEs, concluded that the worst hit are the medium sized firms employing 50-249 staff who wrote off an average of £33,750 in the last year. The effect on the finances of a company is significant with business owners citing problems arising as a direct result of non-payment such as difficulty paying staff, difficulty meeting debt repayments and an inability to pay suppliers.
With a growing trend amongst business owners to look for alternative funding methods, many using peer to peer lending and unsecured business loans through lenders other than their own bank, there is certainly a shift in the way businesses are funding cash flow shortfalls and expansion plans but are they missing a trick by overlooking invoice finance as a method of bridging their funding gap?
Invoice Finance is an often under-utilised tool in the market and still seems to suffer a bad reputation with many people still seeing it as complex and inflexible due to the products of the past, which were exactly that. As a market that has seen significant change with new lenders who are keen to use technology to simplify the market and benefit customers, the negative reputation is not necessarily fair anymore.
Invoice Finance lenders offer various products, such as confidential Invoice Discounting, full service Invoice Factoring and a selection of other products including one off or Selective Invoice Discounting where you only fund an invoice every so often, as is required, meaning you only utilise your facility as you need it.
Whichever service you’re looking for, lenders are working closely with clients to offer services that meet the needs of the end client, and ebb and flow in line with where the business currently stands, growing to help you secure the big new contract, or shrinking in both size and cost during quiet periods. Many lenders are now linking directly to your existing accounting software, meaning there’s no extra work involved in managing the account. This sort of flexibility can be absolutely invaluable and flies in the face of views of it being inflexible and time consuming.
As it stands currently, one in five SMEs are experiencing cash flow problems and many will continue to do so with suppliers pushing for faster payment times for the lowest prices and customers pushing for longer and longer invoicing terms, this will always cause either a reduction in margin to satisfy their demands, or a squeeze on cash flow, making growth a risky strategy.
With only 8% of UK businesses using an invoice finance facility, 19% planning to use it in the future, with 11% in the next 12 months, you could use your own facility as a competitive advantage in securing the best terms for your business, whilst controlling cash flow in the background to allow growth. Lenders are also full of contacts and business advice, so many will be able to take an active role in helping you to grow, should you require it.
If you’re looking to mitigate the risk of late payment, reduce losses due to non-payment or even receive support in managing your debtor book, invoice finance could be the exciting new product your business has been looking for. It just so happens to have been around for many years.