Fix your cashflow with invoice finance

Two thirds of businesses have waited more than 90 days for an invoice to be settled in the last six months.

This is according to new a new survey from Sage, which also found that 45 per cent of respondents think big businesses are the worst culprits for late payment.

Late payment is a growing problem for businesses across the country. For some firms a single late payment can have a dramatic impact on cashflow, and business owners are increasingly on the lookout for ways to mitigate these problems. Invoice finance, a popular alternative funding method, may be able to help you do just that.

What is invoice finance?

Invoice finance allows you to unlock the value of your unpaid invoices. In an invoice finance arrangement you borrow against the value of those invoices, and the lender gets paid when the invoices are settled. First, you raise an invoice as normal. Then, you pass that invoice on to an invoice finance company such as Aldermore. They pay you the face value of the invoice, less an administrative fee. Depending on the type of invoice finance arrangement you are using, you then either chase the invoice yourself, or the invoice finance company does this for you.

Can I use invoice finance with the occasional invoice?

Often, invoice finance companies require you to commit to putting all or a proportion of your invoices through the invoice finance process. Many small businesses are, quite rightly, reticent to enter into long-term contracts. However, this problem is addressed by spot factoring, also known as single invoice factoring. Under a spot factoring arrangement you can choose to ‘sell’ invoices one at a time, or in small batches. This means you can get the cash when you most need it.

What are the advantages of invoice finance?

Invoice finance has a range of important advantages. The first of these clearly concerns cashflow. Late payment is a major problem amongst UK businesses, and invoice ageing remains one of the key pressures on cashflow. Invoice finance helps you to circumvent those pressures, by providing you with the cash you are owed very quickly – in fact, it is common for businesses to receive the money within as little as 24 hours.

The second advantage is flexibility. In an invoice finance arrangement you borrow against the value of your sales, and your credit lines therefore expand with your business. Some business owners prefer invoice finance to bank loans for exactly this reason: you are only borrowing what you are earning, and it is therefore very difficult to take on more debt than you can afford. Similarly, invoice finance can be more affordable than other forms of short-term finance. Many providers will offer as much as 95 per cent of the invoice’s face value.

Finally, it is also worth noting that invoice finance does not generally require a credit check. This has made this an increasingly popular option for businesses that cannot secure bank funding, either because they are so new that they do not yet have a credit history, or because their existing history is not quite up to scratch.