Invoice finance is starting to be seen to key to the recovery of the UK economy, especially amongst the small business sector. It’s a way of boosting cash flow, allowing businesses to continue growing by freeing up funds tied up in unpaid invoices. However, there are a lot of misconceptions about factoring and invoice discounting.
Invoice finance is not only for those businesses having serious trouble. It’s a way of managing cash flow more efficiently, and is often well suited to companies looking to grow. Invoice financing is good for those businesses who have a full order book, but need to boost their cash flow by using a factoring lender to release cash from their invoices. By doing so, they can free up time from chasing payment and invest more in growing their business.
Factoring lenders do not take a huge chunk of your invoice value. Businesses can release 90% of the funds immediately, with the remaining 10% returned after the balance has been paid, minus a small fee. This is typically 0.3-0.5%, so this is an affordable way to finance growth.
If a business is using factoring rather than invoice discounting, it will be the factoring lender that will chase payments on its behalf. This does not mean they will be aggressive in collection, as after all it’s in their interest if you do more business. They will be professional and systematic, making the repayment process simpler for everyone.
Using a factoring lender effectively is a sign that you’re growing and developing business, so there’s no need to worry about losing customers off the back of using invoice financing. Invoice discounting lets you continue to chase the payments while releasing funds, so this could be another option.
Invoice finance is an essential part of small business finance, especially during a period of recovery and new growth. Using factoring or invoice discounting could be an important way to boost cash flow and combat late payment problems, helping SMEs to develop and emerge from harsh economic times even more strongly.