If you are running a business, you may be experiencing cash flow problems because your invoices are just not being paid quickly enough.
You may be making lots of money from the sales of your product but until you receive payment, and sometimes that can take many weeks or months; you won’t have the cash to pay your daily operating costs, to put towards growth and development or just for sustaining your business. Keeping up with the costs of overheads, workers’ salaries and buying new materials could find you running into problems and thinking about possible finance options to help tide you over the difficult periods.
One form of financing, invoice financing, is an alternative way of raising cash and can be an ideal way to raise finance for businesses that have a high cost of sales or are seasonal in their operations or just have to wait a long time to be paid.
The way Invoice Financing works is you borrow money from a finance provider against your unpaid invoices ensuring that instead of waiting for the invoices to be paid by your customers you will receive the money straight away.
8 things that you need to know about this type of finance:
- Invoice financing is a form of financing that allows you to speed up access to money that it is owed to you from customers without having to wait for invoices to be paid. A benefit of this is that any investment or growth decisions can be met earlier and any issues around cash flow shortage, in particular when managing ongoing business operations, can be avoided.
- With Invoice financing you will receive a percentage of the value of your invoices straight away (up to 90%), and receive the remaining amount once the finance provider has received the invoice amount in full.
- The terms of invoice financing can be structured in a way where either you or your lender collect the outstanding monies owed from your customers depending on what suits you and your business best.
- Invoice financing allows for flexibility. The financing is based on cash that will paid soon so as your businesses turnover increases then so does your borrowing power.
- The finance provider will charge a fee for its service.
- It can be a less risky form of finance as it is based on the value of your sales ledger rather than a bank loan which may include risking personal assets.
- It allows your business to maintain control of its cash flow and can be a helpful way to convert sales made on credit into cash.
- The financing grows with your business without the need to negotiate new terms.