Spotlight: Invoice Finance by Mark Millhouse

For any new-start business, there are going to be liabilities that need paying week in, week out, before they start being paid for the work that they’re doing. Having capital tied up in unpaid invoices can be a huge financial burden, especially for SMEs.

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When it comes to invoices, some companies will understandably take advantage of the full repayment terms offered. Whilst this may be beneficial for them, it can leave suppliers sometimes waiting months for their customers to settle what they owe. In that extended period, they still have to pay their staff, the overheads on their premises, finance on any vehicles or assets and all their other outgoings. It goes without saying that this can often leave small business owners with cashflow strains. This is where an invoice finance facility could help.

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Invoice finance facilities allow businesses to use their unpaid invoices as a way to raise cash and fund growth. They provide flexibility, enabling businesses to “say yes” when presented with new opportunities. Most invoice finance providers will advance a business up to 90% of the value of its unpaid invoices, providing businesses with the funds to meet new orders, invest in new machinery or even raise a deposit for a commercial mortgage.

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Invoice finance can be used at all stages of a business’s life cycle, as long as the business in question is raising invoices to other businesses, either for a product it has sold or a service it has delivered. This can cover manufacturing, engineering, aviation, transport and a variety of different sectors. The principles are always the same; you must be doing something for someone that you’re raising an invoice for.

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Support continues and grows as businesses grow

Unlike traditional bank overdrafts, working capital loans or credit lines, an invoice finance facility will grow in line with the turnover of a business. This provides business owners with the funding they need precisely when they need it. Invoice finance solutions are highly flexible and can adapt to growth trajectory and any changing needs, meaning as businesses expand and grow, so does access to working capital.

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There are a range of invoice finance facilities that businesses can make use of depending on their preferences and needs. For businesses who want to take a more ‘hands on’ approach, invoice discounting, often referred to as Confidential Invoice Discounting, is the preferred choice. This allows businesses to maintain direct communication with customers when it comes to chasing invoices, and in many instances, customers won’t even realise they’re using an invoice finance facility.

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For some businesses, especially growing ones where time may be of a premium, Invoice Factoring could be more preferential. Expansion and growth often lead to more responsibilities, so chasing payments for invoices may not be seen as time well spent. With invoice factoring, lenders tend to have closer involvement, providing credit control services and ensuring customers pay on time.

The evolution continues…

The perception of invoice finance has without a doubt transformed over the years with it once being perceived as the lender of last resort and a precursor to a business failing. Fast forward to today and its now being used much more, with business owners seeing it as a funding tool to fuel growth, often right from the beginning of their journey.

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With the relationship-first approach from the banks becoming redundant, alternative lenders are claiming that space, providing a service with dedicated contacts who can facilitate direct access to funders with an appetite to help businesses grow. The purpose of invoice finance – providing a working capital solution to bridge a cashflow gap, remains unchanged.

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