Have you ever looked at your business bank balance and panicked? Then you’ve looked at your unpaid invoices and realised, you’ll be fine, once all of those are paid and you have the money in your account? Managing cash flow can be difficult for small businesses, and ensuring always have the right funds available to you isn’t always easy. This can lead to the dreaded cycle of late payments, which we have talked about before here. But you don’t have to dip into your overdraft to stay afloat and pay your invoices – there is a solution.

What Is Invoice Finance?

Invoice finance (also known as Invoice factoring) allows you to release the money that’s locked up in your customers unpaid invoices, enabling you to manage your cash flow and grow your business. This means you will have the working capital freely available to hire extra staff, buy more products, order raw materials (all of which will need to be done before the customer pays you) and take other steps to really expand your business. So in essence, it’s a quite simple way to unlock the cash that’s normally tied up in unpaid invoices.

The Positives

The key benefit for most business owners is that invoice financing gives them access to money they wouldn’t otherwise see for much longer. This means that they have the money they are owed available to spend on other things – such as paying their own owed invoices. This is one of the best tools for breaking the late payment cycle, and is, in our opinion, hugely underused. There are also a few other advantages that are less well known:

• Unlike other forms of finance, invoice finance doesn’t rely on you owning any assets to act as security.

• It allows you to actively plan for growth.

• Leaves you more time to focus on the business, and less worrying about and chasing late payments.

• No limit on available borrowing – because it’s worked out against your own invoices, your credit amount ca grown with you.

• Gives you fast access to ash when you need it.

The Negatives

Of course, with everything in life, invoice financing does have some disadvantages too. Thy are not make it or break it disadvantages, but more things that you should be aware of before you take it out. For example:

• It’s not always easy to conceal from your customers. Depending on your agreement, your customers may know that you are financing invoices, which could affect your relationship with them.

• There are fees and other costs associated with invoice finance, which can make it a more costly exercise for some businesses.

• There can be a complex exit process for invoice finance. It can be difficult to leave the agreement due to a sudden drop in funds, for example. It’s not a certain disadvantage, or one that isn’t easily dealt with, but it is a factor in decision making.

• It will change the way you operate in some fundamental ways, so you need to make sure you are prepared for it.

At Debtcol, we believe that businesses should use available tools to ease their cash flow and minimize the risk of late payments, both their own and from their customers. We provide advice and guidance to businesses who have suffered late payments and debts in the past, to help them manage their cash flow and collect payments that are past due. For more information on how we do that, just get in touch with our team for a free consultation.