Invoice Factoring: An Ingredient for Business Development
Whilst the government squares up to the big banks once more over regulatory reform, little businesses are fighting their own battle for survival. If small to medium-sized enterprises (SMEs) are going to attain the development that some have predicted in 2011 & 2012, they will have to make use of all the solutions available to them.
A substantial area in which small businesses will have to concentrate upon is generating cash flow. Cash flow is the one the keeps businesses alive. For those who fall into the SME class who typically employ less than 50 people and have a turnover of less than £6.5 million) this supply is being squeezed by late payments from customers that are either struggling to pay bills or applying their buying power to delay payment and improve their own cash flow.
Nevertheless many smart owners of these companies are taking strong measures to protect their vital flow of cash, including demanding payment terms proposed by their clients, threatening late payment charges and even turning down work because of poor payment conditions.
Other options that should be considered include the following: invoice factoring and invoice discounting. Invoice factoring is a type of small company finance service that enables businesses to make use of outstanding invoices in order to induce cash flow the soonest time possible. Cash can be released almost immediately from invoices, and used to pay suppliers or other creditors. Making use of the cash that are trapped in these outstanding invoices after accomplishing the company deal makes sense and the edge of being able to pay suppliers ahead of time often outweighs the cost of having to tap to a factoring company.
There are issues that SME owners need to be conscious of are complicated and lengthy agreements, hidden payments (for example charging to transfer cash on transactions), the possible loss of the relationship with clients, and the get out clauses should you want to exit the deal. Nevertheless, to avoid these kinds of problems invoice factoring or spot factoring can be utilized. With a selective invoice factoring facility, the business does not have to be tied into a long-term contract – you’re able to deal with problem accounts as and when they arise, by selling one or more accounts on a use it when you need it basis, thereby leaving you in control of your debtors.
This form of versatility is important to small and medium-sized businesses that are on a short leash and for little businesses that make use of financial options such as invoice factoring when it comes to posting an annual growth rate. ABFA – (The Asset Based Finance Association) numbers show awareness is rising – the value of outstanding invoice finance extended to companies by its members rose by 9% to £12.6 billion in 2010 which can only be seen as a good thing.
Please get in touch with Interface Financial Group at: 0800 014 8626 or visit www.ifgnetwork.co.uk
