Invoice Finance – Easing Cashflow, Fuelling Business Growth
Invoice financing is a service that enables businesses to release funds they have tied up in unpaid invoices. This process involves working with a third party company who advances money against outstanding debtor balances, thus easing cash flow issues.
Good cash flow management is one of the most important priorities for any business. During recent economic difficulties it has become clear that it is possible for perfectly solvent companies to become unsustainable if cash flow becomes a problem.
The effects poor cash flow has on a business
A key factor in poor cash flow for businesses is compounded by the UK’s culture of late payment. Customers will leave their invoices unpaid for as long as possible to boost their own cash flow, which has a domino effect on businesses that need to pay their own bills.
In addition, if customers do not process their invoices in a timely manner, the prospects of growth for a business are heavily restricted. In such circumstances it would be difficult for businesses to seize short-term opportunities as they arise or raise the capital expenditure necessary to expand.
As shown above, management of cash flow for both short-term stability and long-term growth is vital for any business. So development of strategies to ease cash flow is central to businesses realising their full growth potential.
Things to look out for to determine poor cash flow
There are very clear signs to help spot poor cash flow management. The most obvious signs are going overdrawn and being unable to pay suppliers until your customers have paid you.
No business is safe from financial difficulties, and need to be aware of the weak spots, identify problems and keep a close eye on them.
Some of the most common issues that affect cash but are missed by businesses are:
- Increased sales – an uplift in sales can also cause a rise in your immediate costs, such as higher supplier costs or a higher salary bill.
- Over stocking – if stock levels are very high, capital is locked up and can be a serious drain on cash reserves.
- Poor debt chasing – the differences between money owed to you and money spent on purchases can look healthy on paper however; if debt isn’t chased up effectively it will create a hole in cash flow.
- Low sales figures – if sales results begin to fall it would be necessary to lower all associated costs as quickly as possible. Such costs include salaries and utility bills. This situation would require tough decisions, but ones that may just save a business.
How invoice finance could help address some of the concerns
Invoice finance provides businesses with higher levels of working capital, an increased ability to make accurate financial predictions, and the opportunity to react quickly to changes in market conditions.
Additionally the credit that you secure through invoice financing will directly relate to the strength of your business; as your order book grows, so too will your credit line. This helps to provide the capital needed to expand in an efficient, quick and risk-managed manner.
About the author: Touch Financial is an independent factoring broker, working with over 20 of the UK’s leading factoring companies.