Liquid cash is crucial for the day-to-day functioning, growth, and achievement of business targets. However, access to immediate cash can sometimes become limited. In such instances, a quick and efficient method to improve cashflow is essential.
One effective way to achieve this is through invoice finance – a financial solution that allows businesses to unlock the funds tied up in unpaid invoices, providing swift access to cash with minimal complexity.
How Invoice Finance Operates
Invoice finance is a facility that enables businesses to convert unpaid customer invoices into liquid cash, providing immediate access to working capital. This can be particularly beneficial when pressing financial obligations, such as paying suppliers and staff wages, need to be met but available cash is low.
There are two main forms of invoice finance:
- Invoice Discounting: In this arrangement, the business retains control over the collection of its invoices and receives a percentage of the invoice value upfront from the finance provider. The business remains responsible for ensuring the customer pays the invoice within the agreed payment terms.
- Invoice Factoring: With invoice factoring, the factoring company purchases the invoices outright and assumes the associated credit risk. The business receives a larger percentage of the invoice value compared to invoice discounting, while the factoring company handles the collection of the customer payments.
Benefits of Invoice Finance
- Improved Cashflow: Immediate access to cash enables businesses to meet their operational costs and take advantage of growth opportunities without delay.
- Mitigated Credit Risk: In the case of invoice factoring, the finance provider assumes the credit risk, reducing the possibility of bad debts for the business.
- Enhanced Credit Rating: Prompt payments to the factoring company can enhance your business’s credit rating and improve overall creditworthiness.
- Flexible Financing Options: Invoice finance can be tailored to your business’s specific needs, with options such as recourse and non-recourse factoring.
- Reliable Working Capital: This financing solution offers a stable flow of working capital, helping businesses to grow, scale, and manage their operations more effectively.
If cashflow shortages are affecting your business, contact us today. We can help you find the right invoice finance provider and work with you to develop a cashflow strategy that aligns with your business’s financial goals and operational requirements.