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How to manage your cashflow and grow your business via invoice financing

October 8, 2011

Good cashflow management should be one of the most important priorities for businesses of any size. As has been so brutally demonstrated in recent months, it is possible for perfectly solvent companies to become unsustainable if cashflow becomes a problem.

If your company becomes unable to meet its short-term financial obligations, such as paying staff or suppliers, you may find it virtually impossible to remain in business without securing some kind of borrowing.

Poor Cashflow

The problem with poor cashflow is compounded by the UK’s late payment culture. Customers leave invoices unpaid for as long as possible to boost their own cashflow, which has a knock-on effect on businesses which need to pay their own bills.

Furthermore, if customers don’t pay their invoices in a timely manner, the growth prospects for a business are constrained. In this situation you would likely find it difficult to seize short-term opportunities as they arise, or make the capital expenditure necessary to expand.

As can be seen, the management of your cashflow is vital for both the short-term stability and long-term growth of your company. Developing strategies to ease your cashflow is important, particularly if you want to realise your business’s full growth potential.

Invoice finance is a useful way for businesses of any size to secure their short-term financial position, and ensure that they have the resources on hand to take advantage of unexpected opportunities.

Invoice Financing

Invoice financing allows businesses to raise cash against the value of invoices that they have issued. The invoice finance provider, known as the factor, will pay a proportion of the invoice, often within 24 hours, and can then take on responsibility for ensuring that it is settled by your customer.

When the customer has paid, the factor will then pay you the remainder of the invoice’s face value, less any administration charge.

There are a number of significant benefits associated with invoice financing. In the first instance, it offers some certainty regarding invoice payment dates. Rather than waiting 30 or even 90 days for payment, you can usually get up to 90% of the value of the invoice paid by the factor within 24 hours.

Factoring is therefore useful in the event of an unexpected expense or if, for example, a supplier offers a short-term deal of which you would like to take advantage.

Invoice finance provides your business with higher levels of working capital, an increased ability to make accurate financial predictions, and the opportunity to react quickly to changes in market conditions.

Furthermore, the credit that you secure through invoice financing will be directly related to the strength of your business; as your order book grows, so too will your credit line. This helps to provide you with the capital that you need to expand efficiently, quickly and in a risk-managed manner.

Invoice Finance Providers

There are a number of invoice finance providers, many of which also offer other forms of asset based lending. You should think carefully about your choice of provider, as most factors will expect you to commit to their service for a twelve month period.

However, if you find a factor that understands your business and is willing to support your plans, invoice financing can be an effective means by which you can manage your cashflow and grow your business.