Invoice Finance For SMEs
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Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in invoice finance
There are around 5.51 million SMEs in the UK. This makes up 99.9% of private sector businesses, so it’s no exaggeration to say that SMEs are the lifeblood of the UK economy.
For many SMEs, cash flow is a constant worry and needs to be carefully managed to maintain a stable base to trade.
For this reason, almost 45,000 UK SMEs use invoice financing to manage their cash flow by leveraging their unpaid invoices.
What is invoice finance?
Invoice finance is a type of business finance that allows SMEs to release money from their unpaid invoices.
When a business trades on delayed payment terms, often 30-60 days, cash flow can suffer as costs occur upfront, but payments are delayed. With invoice financing, up to 95% of the outstanding funds are released in as little as 24 hours.
When the customer settles the invoice, the invoice finance provider then releases the remaining funds, minus a small fee to cover their service.
Invoice finance can be broken down into 2 main products, invoice factoring and invoice discounting. Roughly 60% of invoice finance facilities for SMEs are confidential invoice discounting, with the remaining 40% using invoice factoring, also known as debt factoring.
Read more – Invoice Finance: How Does It Work in the UK?
Why is invoice financing so popular with SMEs?
Cash flow is crucial to any business and for most SMEs is the greatest limiting factor to their growth. Poor cash flow can cause endless problems for a business, including the following:
- Problems paying rent and other bills
- Funding marketing expenses
- Issues with keeping up with payroll
- Late payments to suppliers causing issues with stock or materials
- An inability to purchase equipment and assets as needed
On top of the practical issues, cash flow problems also cause a huge amount of strain on the owner of the business and can lead to poor decision making.
Simply put, it’s crucial that SME business owners control their cash flow tightly and maintain strong levels of working capital.
How else can UK SMEs improve their cash flow?
Of course, invoice finance is a great tool to manage your business’ finances, but it isn’t the only option. If you’re looking for a more traditional cash injection, then a business loan may be a better fit for you.
Alternatively, when looking to buy equipment, you may want to consider asset finance as a way to fund your purchase.
For less established businesses, a secured business loan can allow you to release funds quickly, while allowing you to repay over a longer period of time. Finally, a crucial element of cash flow management is cost control. Your business’ finances are the same as a person’s.
Your turnover plays a big role in your cash flow position, but if your costs are too high then you’ll struggle to achieve financial stability.
How do I get invoice financing for my SME business?
The easiest way to get invoice finance for an SME is through our online comparison platform, which allows you to find the best deal in minutes.
To use the tool, you simply input your business details and what you’re looking for and then lenders bid for your business by offering their best terms through the platform.
Each lender only has one shot to offer you the best deal, meaning they have to give their best deal without the endless back and forth negotiation that normally happens.
While the lender can see your business name, they don’t have your contact details, or any consent to contact you – unless you choose to talk to them.
Once you have a selection of offers, simply choose the ones that you would like to talk to, hit the button and they will call you. It couldn’t be simpler. If you’d rather take things offline, our friendly team of advisors are on hand to talk through your needs and guide you through the process.
