Cash flow is the lifeblood of any business. It is all about timing – the books and outlook can be good, but many small to medium businesses experience cash gaps between delivery and payment. Slower debtor payments or extended payment terms inhibit a business’s ability to invest, exploit larger opportunities or simply manage day-to-day costs.
Increasingly, new and growing businesses are using alternative finance tools – tools that support business performance by streamlining cash flow. Invoice finance is a leading example.
Invoice finance is also known as debtor finance, invoice discounting, factoring, cash flow finance or receivables finance. It is a funding solution where a business sells one or more of its current invoices to a financier to secure cash flow, without the requirement of real estate security.
A growing finance alternative, invoice finance is increasingly regarded as a strategic and versatile cash flow funding tool and is utilised by start-ups to larger businesses.
Three steps – the invoice finance process:
1. The business invoices their client;
2. The business receives up to 80% of the invoice value immediately rather than waiting up to 90 days for their client to pay. This can be completed on a full turnover or an invoice by invoice basis; and
3. The remaining 20% less a fee is returned to the business when their client pays the invoice.
Invoice finance can be strategically used to inject cash into a business for a variety of purposes including:
1. Funding business growth i.e. contract mobilisation and early delivery
2. Smoothing seasonal cash flow
3. Asset finance deposits
4. Mergers and acquisitions.
Cash flow is more often than not, the determining factor in business performance and success. Smart use of invoice finance is a proven tool for business that can deliver both options and opportunities.