Invoice Finance:
Ease Your Cash Flow
There are
several benefits that can be gained when a company decides to invoice
finance. A business that deals in the sale of products or services to
other businesses will receive the advantage of improved cash flow by using
an invoice finance service.
Basically,
to invoice finance means to sell or assign your outstanding invoices to an
invoice finance company. This company in most cases will give you instant
access to a percentage of the total amount of the unpaid invoices assigned
to them, commonly from 70-90% of the value of approved invoices. In many
cases they may also take responsibility for invoicing, chasing and
collecting owed invoices as well as accept a percentage of the loss on
unpaid invoices.
Having
access to these funds greatly increase the cash flow within your company.
Cash on hand for increased production, savings by way of discounts on
company expenses, decrease or even elimination of business expenses, and
improved opportunities for business loans.
By using
an invoice finance service there is no waiting 30-45 days for people who
pay on time, and even longer for late payments on invoices. That cash on
hand can be more readily available for production, creating an immediate
availability for more sales.
Another
area the right business can gain greater cash flow from using invoice
finance is in taking advantage of discounted payments of business
expenses. Many companies offer discounts of as much as 10% if their
invoices are paid on receipt or within a certain period of time.
With
invoice finance you have cash on hand to pay your bills sooner, rather
than having to wait until your customer pays you for your product or
service. Increased cash flow also increases your companies purchase power,
making it possible to negotiate better terms or discounts from suppliers.
The savings in these two areas alone will in most cases outweigh the fee
from the invoice finance service.
There are
other business expenses that can be cut back or even eliminated when using
invoice finance, for example: administration costs, stationery, and office
equipment. When adding the expense of employing an accounting clerk, not
only their salary but also company benefits, it’s easy to see some great
advantages to using an invoice finance service.
Invoice
finance can be particularly helpful to a business in the start-up phase.
Most lending institutions have strict rules on lending to ‘new
businesses’. A bank or lender will only consider a small portion of
outstanding (unpaid) invoices owed, often only 40% of the total amount of
outstanding invoices, when administering a business loan. By invoice
financing your ledger shows cash on hand in place of a large amount tied
up in outstanding invoices.
There are
some disadvantages to using an invoice finance service. The goods or
service your company supplies can have a huge effect on whether your
company should use invoice finance. Businesses providing recurring
services or product orders are good candidates, while invoices for
one-time orders might find it difficult to obtain this type of funding.
These
companies prefer to know the debtor and their track record in paying debts
before accepting invoices owed by that debtor. Another disadvantage would
be if the mark-up sale price of the goods or service provided were less
than the amount of the invoice finance fee.
For the
right business combining the improved cash flow with a reasonable profit
margin along with increased sales orders the business is in a position to
expand and the cost to invoice finance can easily be absorbed in increased
profitability.
Carbon Finance Ltd
Carbon
Finance Ltd is an Independant Finance Broker in the UK
