When businesses are considering their finance options, there is a tendency to concentrate on the popular products which may not always be the best solution. What would you consider for your company? Overdraft? Company Credit Card? Loan? Invoice Finance? I would expect that the last of these would be at the bottom of any list, if it was even on it to begin with. Invoice finance is a tried and tested option and, as such, it is surprising that so many businesses overlook it.
It's difficult to find a time where finance isn't being talked about in the press, on TV or on the radio. But would you know what invoice finance was if you heard it being talked about in any of these media? If not, you may find the following brief guide to the whats, ifs and buts of invoice finance helps demystify this form of business finance.
Invoice finance, more specifically known as invoice discounting or factoring, is an alternative finance product which often gets its fair share of bad press in the market. This seemingly helpful cash flow product still carries the stigma of being a last chance saloon for a company on the brink of their demise, but is this really a true reflection? No, is the answer.
Invoice finance can often be the product of choice for many companies from small start-up firms to established multi-national companies, although in general it is medium to large companies that gain most benefit. In simple terms, invoice financing allows a business to receive a large percentage, typically 80-85% of the money owed to them within 24 hours of submitting an invoice. The invoice financing company then remits a further percentage of the invoice, typically 10-15%, after the invoice has been settled.
The benefits which this product brings are vast:
Cash Flow
The first and most obvious benefit is access to cash. The flood gates of opportunity can well and truly open with enhanced business cash flow. Many companies use increased financial liquidity to pay suppliers early, buy stock at an attractive price and bridge the gap between completed work and the date of their invoice payment.
Credit Insight
All companies providing their clients with invoice finance also give access to invaluable information about the clients' customers, allowing them to make informed decisions about levels of trade and credit.
Bad Debt Protection
Many invoice financiers offer bad debt protection, which offers the client financial protection against any of their customers going bust.
Credit Control
This benefit comes only when you operate a factoring facility which gives you the opportunity to allow your factor to carry out collections on your behalf. This frees up much needed time and would usually be at as little as half the cost of employing a credit controller.
The next time you are thinking about your business' financial position, it's as well to consider all the options rather than just plumping for the most obvious solution. Why not explore all of the options including invoice finance? Even take it a step further and think outside the box by considering new and innovative alternative finance options such as crowd funding, peer to peer lending or even timesheet finance.