Invoice finance has been around for a long time, but is still a route to finance that many businesses don’t consider properly. However, when should a business start to think about it? And why haven’t more businesses used it in the past? With the government now backing factoring and invoice discounting as ways for SMEs to plug the funding gap created by a lack of bank lending, now is the time to look into this business finance option.
There are many forms of invoice finance, but all of them help businesses to release cash flow tied up in unpaid invoices. This means SMEs suffering from late payment problems which can restrict cash flow could find invoice finance to be a welcome lifeline. However, this has always been the case, so why is invoice finance so underrated?
The economic situation means that the advantages of invoice finance are starting to become more relevant to a greater subsection of small businesses. Banks are reining in lending, so traditional routes to finance might not be available. Customers are taking longer to pay, as they themselves need more breathing room in harsh economic conditions. Suppliers are, however, doing the opposite – demanding faster payment – but again this is down to the economic pressures they are feeling. SMEs are starting to be pulled in two directions at once without having bank finance to rely on, making invoice factoring an appealing proposition.
Whereas before invoice finance might have been seen as a last resort of sorts, it’s now becoming a lot more mainstream. Invoice discounting lets businesses remain in control of their debt collection, making it a discreet service. Businesses with healthy sales ledgers are are also using it as a way to fund expansion and growth, and even start exporting.
Invoice finance is an essential option that any SME should consider if they issue invoices on a 30, 60 or 90 day basis.