What is contract finance?
Contract finance allows companies to unlock capital tied up in unpaid invoices, enabling them to maintain steady operations and pursue growth opportunities.
How does contract financing work?
Contract finance operates by allowing businesses to use their outstanding invoices as collateral. Companies can typically access up to 90% of the invoice value almost immediately after issuing the invoice.
The remaining balance, minus the financier's fees, is paid when the customer settles the invoice.
Key benefits of contract financing:
- Improved cash flow: By receiving funds upfront, businesses can manage their cash flow more effectively.
- Enhanced business growth: With more consistent cash flow, companies can invest in new projects and resources.
- Credit management: Some contract finance providers offer credit management services, helping businesses chase up unpaid invoices.
Eligibility and application process
Criteria for eligibility
Primarily aimed at B2B companies.
Based on the creditworthiness of the client's customers.
Invoices must be for completed work or delivered goods.
1. Initial consultation
Discussing specific needs with the finance provider.
2. Documentation submission
Providing relevant financial documents.
3. Approval and setup
Subject to credit checks and due diligence.
Comparing contract finance with other financial solutions
Traditional bank loans
- Collateral requirements: Usually require physical assets as collateral.
- Flexibility: Less flexible in terms of amount and repayment.
- Limitations: Typically offer lower funding limits.
- Cost: Can be more expensive due to higher interest rates.
Case study: success through contract finances
A UK-based IT services company faced challenges in managing its cash flow due to delayed payments from clients. By opting for contract finance, the company was able to access 85% of its invoice values upfront.
This immediate cash flow boost allowed them to take on additional projects, leading to a 30% increase in annual revenue.
What are the future trends in contract finance?
Innovations in fintech are streamlining the process, making it faster and more user-friendly.
As international trade grows, the demand for contract finance is increasing globally, offering more opportunities for businesses to expand.
Have you ever thought about invoice finance to help improve your cash flow?
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our confidential invoice discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
More cash flow management advice
The benefits of invoice finance companies such as Novuna Business cash flow
Want to understand more cash flow finance terms?
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We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.