Traditional and single invoice finance has to be the saviors in a world full of cash flow needs and difficult financing options. They’re definite lifesavers if you ask us and here’s why.
In an invoice factoring arrangement there are three main characters or parties: the company selling its receivables, the customer who owes the company and to whom the receivables are attributed to and the financing agent called the factor.
In this scenario, the company sells its right to collect against the receivable by virtue of its sales invoice to the factor in exchange for immediate cash which is to be received before the customer pays their dues. The factor shall bear the burdens of collection and provide an amount that is equivalent to about 80-95% of the invoice’s total value with the remainder being held up until the customer pays in full at the maturity date of the invoice. It is only then when the balance is forwarded to the company less the fees agreed upon.
There are many reasons as to why these two methods are widely used and below are only some of them.
It’s relatively fast. – Ever heard of a loan or similar other financing medium that releases cash in a matter of a day? No of course not. Well not until invoice factoring. Most providers can approve and release the cash in as fast as twenty four hours.
There are lesser requirements to deal with. – It’s less of a hassle because of the far lesser amount of requirements to submit during the application process.
It’s no form of debt. – Wait what? Yes, you’ve read that right. Factoring creates zero debt because it is not one. It also does not bear all the other strings attached to one such as interests and penalty fees.
It injects immediate cash into the system. – With the swift process, it enables the immediate injection of resources into the cash flow thereby strengthening the working capital as it does. This is great in terms of liquidity purposes and frees up any locked in cash within invoices.
Even struggling entities can use it. – Really? Yes really. This is because traditional and single invoice finance providers bank on the customer’s creditworthiness and not on the company’s. After all, it’s the customer who has a debt in this situation as evidenced by the sales invoice.
Every businessman and businesswoman knows that in order to put up a company, capital should be present. Without it one simply cannot function. Capital is used to acquire all other assets necessary for operations. This is why entrepreneurs take time to carefully study their options when it comes to raising financial resources. For many, this is achieved with the help of UK Single Invoice Finance Companies. But when exactly do you need their services? How do you know when to give them a ring?
Restrictive and expensive bank loans are one. Not all companies can afford one and not to mention that it is pretty hard to apply for a loan and actually get approved. Many small to medium scale enterprise are skeptical regarding acquiring debt early on so invoice financing becomes a really good option instead.
In a similar note most loans require some sort of collateral that will include business and even personal assets. Most owners do not like to risk their personal assets. Invoice finance does not need any collateral as it is not a loan in the first place.
Untimely customer payments are another. Unless you sell your goods and services solely on cash then this shouldn’t be a problem. The thing, however, is that most businesses do so both in cash and in credit. There will always be a risk of non-collection and that is the very reason why there is something we call “doubtful accounts expense”. To help prevent this or lessen their unhealthy impact towards the company, you can sell the said receivables and advance their value instead where any risk of nonpayment is transferred to the finance company.
A rising opportunity loss is another thing. With a lack of financial resources many businesses forego certain opportunities, projects and ventures which could have given them a breakthrough, a massive increase in sales and promising growth. To acquire more funds, invoice financing either through factoring or discounting allows them to generate funds from receivables that are yet to be paid by customers in the following months to come.
By now many entrepreneurs already know the importance of cash flows. Just because your assets are growing doesn’t mean more cash for the company. Who knows much of them are locked up in customer invoices? This creates a negative impact on cash flows as more disbursements are made than actual inflow of cash. With UK invoice finance companies advancing the value of the said invoices, cash flows are bound to improve.