By Evette Orams, Managing Director at Hilton-Baird Financial Solutions
With the concept of factoring dating back around 5,000 years to the days of King Hammurabi of Mesopotamia, it is fair to say that Invoice Finance is a proven and established funding tool. This type of funding has been widely used in the UK since the 1970s and has been embraced globally over the years due to its unique ability to satisfy a key business need – cash flow.
Invoice Finance has evolved and developed to meet the ever-changing needs of businesses worldwide. With this, there have come wider product developments within the Invoice Finance offering.
In the simplest sense, Invoice Finance overcomes the challenges of trading on credit terms by bridging the gap between an invoice being raised and receiving payment for the goods or services, enabling you to pay suppliers, wages and other running costs in the interim. This is achieved by the funder releasing cash against invoices (typically up to 90%) within 24 hours of their issue, sometimes sooner, rather than the business having to wait for the customer to settle the invoice to terms.
Invoice Finance comes in various configurations and can be tailored to suit the individual needs of a business. Broadly speaking, there are two main solutions which fall under the Invoice Finance banner, Factoring and Invoice Discounting, and each brings its own benefits.
Whilst the key benefit of an Invoice Finance solution is the ability to access cash tied up in the business’s sales ledger quickly and cost-effectively to meet day-to-day funding and cash flow needs, it can provide so much more than funding alone:
Under the various forms of factoring facilities, an invoice financier can provide a dedicated sales ledger management service. This allows businesses to remove the burden of credit control from their workloads, enabling them to focus on other, potentially more beneficial income-generative activities. Accessing the funder’s expertise in this area can help to improve the average debtor days and enable the business to focus on the positive aspects of their relationships with their clients, leaving the arduous task of asking for money to their funder.
For some businesses, keeping their funding arrangements confidential is key. With Confidential Invoice Discounting facilities, the financier’s involvement is not visible to your customers.
Some invoice financiers can provide facilities to help you safeguard your business through the provision of debtor protection, as either a bolt-on or part of the facility. Such facilities help protect against protracted default and the risk of insolvencies, subject to designated and valid credit limits being in place, so provide a shield of cover that’s particularly pertinent in the current climate.
Facilities come with a dedicated client manager, who is there to support your business and ensure the facility remains tailored and adequate for your evolving business needs, allowing for flexibility whilst of course ensuring facilities operate within the agreed parameters.
Some providers have the ability to support in additional ways, and tailor the facility to their clients’ changing needs using various bolt-ons, such as loans, trade finance, forward exchange facilities and so on.
The improved cash position provided by having an Invoice Finance facility can help in many ways, be that to give you the opportunity to bid for new contracts or simply to secure supplier discounts, providing savings.
The calculator below generates an instant indicative invoice finance quote (based on current market rates) and gives insight into the amount of funding you could release:
Whilst traditional Invoice Finance facilities provide funding against a business’s entire sales ledger, Spot and Selective Invoice Finance facilities allow you to release cash from individual or a selective portion of invoices. This can be beneficial to businesses who have a sporadic requirement and don’t wish to access funding against their whole sales ledger. For example, your funding requirements could centre around a particular client, high value invoices or clients with longer payment terms.
In addition to releasing cash tied up in the sales ledger, an Asset Based Lending facility can provide the option of unlocking capital from a range of assets on the balance sheet. With an Invoice Finance facility at its core typically, additional funding can be secured against the value of plant, machinery, equipment, stock and property.
Invoice Finance can also be used to facilitate overseas trade in various currencies, with a variety of solutions, such as export finance and trade finance, available to support importers and exporters.
Funding can be advanced in the favoured currency to mitigate fluctuations in exchange rates and you can benefit from the finance provider’s specialist knowledge of the countries relevant to your business. Additionally, the invoice financier’s market knowledge and insights can be a real asset in getting invoices paid.
Invoice Finance can be a valuable funding tool for all businesses, from start-ups to large corporates, across a wide range of industries trading both domestically and overseas. It is suited to businesses trading on credit terms.
Unlike other forms of funding, there is less requirement for a business to have a long and profitable trading history as funds are primarily leveraged against the sales ledger. It can be particularly invaluable for companies experiencing post-pandemic challenges and focused on recovery, as well as companies which are growing quickly.
Invoice Finance has supported businesses through many recessions and the subsequent challenges, as well as periods of high growth. The fundamental way that Invoice Finance works means it provides a highly flexible form of finance, which enables businesses to seize valuable opportunities as they arise.
Whilst there is much liquidity currently, as businesses have benefited from various government support schemes, once the loan and VAT repayments become due and staff start to return back to work as the country opens up, businesses will once again need to access flexible and supportive forms of funding.
The Invoice Finance industry is ready and able to support businesses in navigating the recovery phase as it has done historically, due to its unique flexibility and ability to deliver considerably more than ‘just’ funding.
Visit our Invoice Finance page to read more about Invoice Finance, how it can help your business and get an instant quote from our preferred Invoice Finance broker, Hilton-Baird Financial Solutions, or contact their award winning team directly on 023 8202 9739.
Evette Orams is Managing Director of Hilton-Baird Financial Solutions, an FCA-authorised commercial finance broker with over 24 years’ experience of introducing businesses of all sizes to the most suitable funding facilities. Specialising in Invoice Finance, Hilton-Baird were voted Invoice Finance Broker of the Year at the Business Moneyfacts Awards in 2018 and 2020 and have a proven track record of assisting businesses with a diverse range of funding requirements.
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