Can Invoice Finance Work for Your Business?

Cashflow is the heartbeat of any business and the way you fund your business is a big decision and one that can be catastrophic if you get it wrong.

With many High Street Banks having tightened their credit policies and being unwilling or unable to support many small and medium sized businesses through these difficult times, it’s not surprising that more and more businesses are turning to alternative sources of finance.

The fastest growing of these alternatives is invoice finance, namely invoice factoring or invoice discounting.

The benefits are simple

  • The amount of cash available is directly linked to your sales and therefore grows as your business grows, usually generating more cashflow than traditional funding lines.
  • As an invoice finance facility is secured by your sales ledger there is normally no need to put up your home as security.
  • As facilities are not based purely on historic balance sheet performance, they are ideal for highly geared businesses or businesses in turnaround.

As with any facility, it will not suit all businesses and there are some points to bear in mind:

Since the facility is linked to your sales, if your sales are declining then the facility may become more restrictive than a fixed overdraft limit.

However, not all businesses are deemed to be fundable.

The main criteria is

  • Your business needs to be selling to other credit worthy businesses on credit terms of between 7–90 days.
  • Ideally the nature of the sales needs to be simple with no stage payments or contracts to complicate collection of the debt.
  • All sales need to be supported by suitable proof of delivery/service provision to avoid possible disputes.

Here at Skipton Business Finance we pride ourselves in our personal service and we never use a scoreboard or computer system to determine whether we fund a business.

If you would like to know more or require a quick, free consultation on whether an invoice finance facility would work for your business, please contact one of our local experts.