Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in invoice finance
Invoice finance is used by many businesses to manage cash flow due to the delayed payment terms demanded by customers. Cash flow is the biggest driver of business growth, without it your business with remain stagnant and struggling to stay afloat.
Invoice finance can be used to greatly accelerate the growth of a business. In this article, we will look into how to use an invoice finance facility to your advantage and allow you to unlock the full benefits of such an arrangement.
What is invoice finance?
Invoice financing is a type of business finance that allows you to borrow against invoices that you have raised, but have not yet been settled. It’s designed to improve cash flow by speeding up the rate at which your business receives payment for services rendered.
The benefits of using invoice finance
Whether you have a full invoice factoring facility, confidential invoice discounting or even selective invoice discounting, you can vastly increase your margin as a result of the revised payment schedule of your facility.
If you were previously on 90-day terms for instance, with reasonable ongoing costs of trade, your ability to pay suppliers will be restricted, leaving you focusing on managing cash flow rather than negotiating the best financial terms.
By receiving a portion of your invoice balance upfront, it’s likely you will be able to negotiate a price reduction for a fast payment. This will automatically create additional profit margin, meaning you can afford to pass on a percentage of the saving to your customers. This could make you more competitive in the market, allowing you to retain your customers and even win new ones who may have previously been out of reach.
The ongoing opportunities offered by such a reduction are then greatly amplified when you consider the time saved managing payments or worrying about how the books can be balanced during the wait for payment. By spending more time working on growing your business rather than managing the bank, you’re sure to spot more opportunity to grow and may even find time to focus on strategy and direction.
How invoice finance can accelerate business growth
When taking on new clients, due to the newfound time saved and control of the bank, a company backed by an invoice finance facility will be much more likely to be able to support the growth of their business in two ways:
1. The initial business cash released from the facility is able to be used to support new staff, new equipment, marketing costs, or even just releasing the pressure from the bank. All of this could be crucial in funding the changes required to bring the new customer on board.
2. Once you begin work with your new customer, you are going to suffer additional expenses to undertake the work, pay any additional staff, and deliver the goods to your client and all other increases in your variable costs. Due to the flexible nature of invoice finance, your facility would grow in line with the growth of your business, meaning you can focus on getting the right clients on board, and delivering the goods to the best possible standards.
These growth options would not be possible with a traditional overdraft facility. This would have to be renegotiated and, of course, would be unlikely to stretch to both the purchase of new equipment and the ongoing cost of the additional business.
How to choose the right lender to support your business growth
The potential benefits are compounded as you are allowed to move forward and will continue to grow with you as your business grows. There are many different options from a large number of suppliers and will vary depending on the need to export goods and release working capital to ease cash flow, your business type and your plans for the future.
Taking a facility with a lender who understands your business and is keen to support you as you move forward can be invaluable, as can the ability to make use of their network of contacts as many good facility managers look to connect local businesses and help their clients grow, a situation that works for everyone involved!
Working with ABC Finance Ltd
As you can see, your business can be totally transformed by taking on an invoice finance facility well matched to your needs. The increased efficiency of your business will be appreciated by everybody who deals with you and can only serve you well going forward.
Our team are available to provide more information through our online contact form or, alternatively, you can give us a call on 01922 620008.