102. Is invoice finance right for your business?

Tectona managing director Mark Nicholls discusses when it might be worth considering

Our clients regularly ask us for help and advice on the best source of finance for their business. So, to broaden our offering, we have partnered with specialist lender, Optimum Finance.

Optimum Finance provides tailored invoice finance solutions and works with its clients to unlock the cash tied up in unpaid invoices, enabling businesses to focus on their growth.

Invoice finance has many applications, some that you may not be aware of.

So, with Optimum Finance’s help, we have listed 10 scenarios where such a flexible cash flow solution may be appropriate for you:

1. New business start-up

New businesses can benefit from using invoice finance because not only is this a great way of optimising cash flow, but it can also be structured to offer other facilities – for example, credit control and debtor protection insurance.

For a small business that is not geared up for good credit control/risk management, this is a really valuable service.

Debtor protection isn’t exclusive to start-ups though; it should also be considered if the business is reliant upon a narrow debtor base where losing one of the debtors could be catastrophic.

2. The business is currently using invoice finance but is unhappy with their current facility

This might mean there is no relationship with the funder (or it has broken down), or that the funding restrictions in place are limiting the availability of funds. This can therefore cause cash flow issues.

Perhaps the business is not getting great service from their current funder and wants to have more flexibility, but the trade-off is this: more flexibility usually means slightly higher fees.

3. The business is in a growth phase and experiencing cash flow constraints

Growth is good – but only if cash flow is properly managed; growth can give rise to many different issues. Taking on a large new client, for example a multinational retailer or a government entity that traditionally has longer payment terms, will have an impact if the business can’t finance the debtor period.

If a business is looking to gear up for anticipated growth and needs to increase stock levels and staff, this might cause cash flow challenges which could be addressed through invoice finance.

4. Struggling to get an overdraft facility

When a business is fairly new, it may struggle to get approval for an overdraft facility – especially if the directors are unable/unwilling to give tangible security.

5. The business is currently relying on an overdraft facility

Overdraft facilities are inflexible and cause problems when a business requires more cash than the agreed facility. They’re technically also repayable on demand (and this sometimes happens – really!).

Invoice finance facilities are flexible and will grow with a business since they are based on the value of the outstanding and growing debtor book.

6. Poor credit control

If credit control is an issue, then cash flow will be impacted. So, a debtor book of slow payers and disputes would be a key indicator of problems not too far ahead.

7. Temporary recruitment agencies or similar services

Companies in this sector often use invoice finance to cover staff costs whilst waiting for payment, enabling them to fulfil their (often weekly) payroll obligations without putting excessive pressure on the business.

8. Importers

Any business importing goods could potentially use invoice finance. Specifically, when they are using a trade finance company to finance the imports from point of origin. Trade finance is typically very expensive and invoice financiers are usually well versed in structuring tripartite agreements.

9. Management buyout (MBO) or buy-in (MBI)

Invoice finance is often used in an MBO or MBI to create a regular cash flow that is then deployed to finance the repayments associated with the buyout. It is very often used when the debtor book is unencumbered and enables the incoming buyer to use a portion of it towards the purchase consideration.

10. Supplier Pressure

Another example is if a business is struggling to pay key suppliers (and may even be receiving fines from HMRC). With the assistance of invoice finance the business can negotiate better terms with their suppliers (by paying them quicker and negotiating discounts) and avoid fines.

The team at Optimum Finance comprises highly experienced professional commercial funding and cash flow experts who are genuinely eager to help you and your business succeed.

If this resonates with you, either contact Mark Nicholls at Tectona or get in touch with Optimum Finance directly by clicking here.

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