The changing perception of invoice financing

Once considered the ‘lender of last resort’, invoice financing is now widely considered to be a flexible and accessible form of working capital for growing businesses. In the past, it was very expensive, and businesses were often only offered a facility by their banks if they were seen to be struggling.

Crystal Palace Football Club are a great example this week of a business with an eye on cash flow management.  After securing a ￡22.5million cash boost by selling an instalment owed on the transfer deal which took Aaron Wan-Bissaka to Manchester United to receive the money up front.

Instead of waiting for the money to be paid directly next summer, Palace have agreed to sell the instalment to Australian bank Macquarie, who will loan them the ￡22.5m now and then take payment from United in nine months’ time.

Cashflow management is undoubtedly one of the most important issues facing any business of any size. By selling the instalment to Macquarie, Crystal Palace can invest much quicker in their infrastructure and training academy to support their three-year business plan.

Whilst this is not invoice financing per se, it is a good example of why the perception of invoice discounting is changing.

We are seeing more and more lenders entering the market, more businesses starting up, and payment terms are getting longer and longer. Intervention and legislation don’t seem to be helping with long payment terms, so it would seem invoice finance is here to stay. With so much competition, prices of invoice finance are coming down…fast. Some lenders are quoting as low as 1.5% on a single invoice.

Invoice finance is very useful for growing businesses. As you expand and take on new, larger clients, you’ll often find the payment terms are much longer than your smaller clients. Add in the fact that the invoices are larger, meaning you might need more stock/ staff, and you have a recipe for a cash flow pinch down the line.

Let’s look at SMEs. Big retailers are now taking more chances on smaller businesses as they look for the new hot products. Whilst these small businesses might think all their Christmas’s have come at once when the likes of John Lewis come calling, often they don’t have the cash reserves to wait 60 or even 90 days for their invoices to be paid. Until legislation comes in to protect small businesses against such long payment terms, many are using invoice financing. In fact, more than 50,000 businesses in the UK now have an invoice financing facility.

It no longer just spells bad news. It may still be the last resort to some companies to buy them some time to breathe life back into the business. It may unfortunately be delaying the inevitable. But it can also be the cash boost you need to support your business plans and ambitions, and to take your company to the next level or secure its future.