So, like so many other new businesses in the UK, you’re struggling to keep things afloat. But why? People seem to like your product and sales are solid, so what’s the problem?

In many instances,the issue is cash flow, which often arises from the far too common problem of overdue payments. If your business is one of the many struggling to get what you’re owed in full and on time, you need to find a way to encourage prompt payment, or at least get access to the finance stuck on the books of your sales ledger.

While the former isn’t always possible, the latter often is via the process of invoice financing. An increasingly popular funding method for suppliers struggling with client payments, could invoice finance work for you?

What is invoice financing?

Invoice financing allows you to borrow money from a third-party finance provider based on the amount due to you from your customers. It’s a funding solution that will improve cash flow in your business as well as allowing you to execute payments in spite of having late paying customers on your books.

With cash flow problems being one of the foremost reasons for small business closure in the UK, it’s a funding option that has dramatically risen in popularity in recent years.

Advantages:

  • An easy and accessible solution.
  • It enables businesses to keep charge of finances whilst allowing extended terms for clients. Clients are happy and the business maintains a positive cashflow.

Nonetheless, it is essential to keep in mind that there will be fees to contend with. If an invoice goes unpaid, the costs can soon add up, and may end up costing the business more in the long run.

Why might a business choose invoice financing?

Different from the usual loan, when a business chooses to use invoice financing, lenders usually prioritise and focus on the amount of money you are owed, rather than the amount of money you have. Consequently, if your business revenue is low orhas multiple outstanding debts, it is unlikely that yourrequestwill be turned down for invoice financing than you would be for a loan from a bank.

Having this money enables a business’ cash flow to continue uninterrupted, since the settling of invoices can take time which would cause disruptions in production and continue to cause issues long term.

How does a business qualify for invoice finance?

Although there are a few matters to take into consideration, there are not many requirements for businesses to qualify. Here are some steps you may consider when enquiring:

Most importantly, you’llneed to be a business that trades with other businesses (B2B) rather than consumers. You’ll also stand to qualify if you are a limited company, and offer industry standard credit terms.

At times lenders might need a minimum number of monthly invoices sent to your clients to look into financing these invoices. Businesses are equally more likely to qualify if there is an annual turnover of at least £50,000.

How does it work?

While the invoice financing process differs from business to business, there are a few general steps to the process.

Upon your application, the invoice financing firm will want to understand and gather information on your business’s key financials, processes and structure before making an offer. Once the financier is satisfied with your track record, they’ll draft up an offer to essentially buy your invoices from you and then treat them as their own. This means the invoices are then effectively off your hands, which means the financier deals with chasing payments and any future disputes that may arise.

Of course, this comes at a cost to you as a business, and invoice financing can get pretty pricey if you’re looking for an offer on a high volume of invoices and clients. Most invoice financing agreements will involve service and discount charges that will eat into your potential returns. Of course, weighing the cost versus benefit of an invoice finance proposition will be the big question mark for your business.

How can it aid business growth?

Invoice financing can be a huge enabler of business growth because of how it enhances cash flow for businesses that would struggle to generate a regular stream of finance otherwise. Businesses with limited and inconsistent cash flow can suffer from a variety of key issues, including struggling to pay employees, the inability to restock key products and delays in paying their own invoices.

All of these factors are blockades to growth, and a solid invoice financing deal can give you access to cash flow that gives you the freedom to invest in and enhance the business.

Is it the option for your business, then? If you’re struggling with cash flow and late payments, it’s certainly something to look into – it really comes down to whether the cost of invoice financing is worth it for your organization.