Flexible funding to meet different business needs

By Tony Smith, director, Business Expert

The use of invoice finance has surged in popularity over the last couple of years as businesses in a range of sectors become more aware of the particular benefits it can offer. Most business owners will know exactly what invoice finance involves, but it is not until they have a particular problem they need to solve that they start to look at their options more closely.

Invoice finance is usually promoted as a very flexible finance solution. There are a number of different products under the invoice finance umbrella that provide a range of funding solutions that can meet a variety of business needs.

Invoice finance helps businesses with cash-flow problems free up the working capital they need to operate and grow. Rather than waiting for 30, 60 or even 90 days for an invoice to be paid by a customer, invoice finance gives businesses instant access to cash to pay suppliers, buy equipment, make payroll, take advantage of business opportunities and cover the many expenses they incur.

Can every business use invoice finance?

While there are a range of invoice finance products out there, including factoring, invoice discount, spot factoring and selective invoice discounting, there are certain things that must be true about your business for you to apply:

  • You sell products or services to commercial customers or government agencies
  • Your customers are creditworthy
  • You issue invoices to your customers
  • You need quick access to cash to help you run your business more effectively

What industry-specific problems can invoice finance solve?

Once those basic requirements have been met, firms in a diverse range of industries choose to use invoice finance to solve the particular problems they face. That includes:

    • Recruitment agencies – Invoice finance can help recruitment agencies bridge the significant delays they face between paying workers and receiving payments from their clients to cover the cost of those staff.
    • Trucking and logistics – With the cost of fuel, drivers and vehicle maintenance all needing to be paid upfront, invoice finance can free up the cash required so that transport businesses can plan ahead.
  • Wholesale and distribution – Long credit terms are a common fixture in the wholesale and distribution industries. Rather than waiting up to 120 days for payments to be made, invoice finance frees up cash so that businesses can capitalise on new opportunities.
  • Professional services – Chasing payments is time-consuming and potentially damaging to valuable client relationships, which is why some legal firms, architects and engineers prefer to use invoice finance instead. The use of invoice discounting also allows the arrangement to remain confidential.
  • Construction – As the collapse of the construction giant Carillion shows, long payment terms are certainly nothing new in this industry. Contractors near the bottom of the payment chain can have to wait 120 days for invoices to be paid. Using invoice finance allows construction firms to bid with confidence on future work knowing they have the funds to pay for materials and hire the staff they need.

What do the statistics say?

A series of studies from the Asset Based Finance Association (ABFA), the trade body that represents the asset-based lending industry (now UK Finance), has shed some more light into the type of businesses that use invoice finance the most.

In terms of scale, you might expect invoice finance to be used by smaller businesses. However, one-in-ten of all invoice finance customers have a turnover in excess of £10 million per year, while a third have a turnover of less than half a million. There’s also evidence to show that invoice finance is used by businesses that are growing quickly, as it gives them flexibility and quick access to the cash they need.

We can also break those figures down by industry. The manufacturing and distribution industry alone accounts for around half of all the UK businesses that use invoice finance. As these businesses are often the last link in the supply chain, they typically have to wait a long time for their invoices to be paid. That’s a problem invoice finance can solve.

Service providers account for around 30 percent of the market as they tend to have very lean financial models. As well as giving them additional flexibility, invoice finance allows service providers to take on new team members when bigger contracts need to be serviced.

Could invoice finance represent a viable solution for your business? With a number of different products suited to a wide range of business types, it could be an effective way to release the cash tied up in invoices so you can concentrate on growing your business.

Business Expert is an an online platform that allows businesses to compare quotes from invoice finance providers so they can release the capital they need

  • The users seem to like it as well. Our polls suggest that 98% of current users are prepared to recommend receivables finance to other businesses – a strong endorsement.