Why Invoice Financing is Better than a Bank Loan

Businesses throughout the UK are seeing their hopes of expansion and progress crushed as their loan application is rejected. The consequences of this can be severe as the business is unable to plan ahead and has no money to grow. They have difficulties paying existing staff let alone making plans to buy more stock and bring in more employees. Without readily available cash, a company is unlikely to be successful.

Generally, businesses look to either establish a line of credit or else they seek a loan from a financial institution such as a bank. These are the most common solutions to the problem of low cash flow but they are not really the best choices. Both options carry fairly heavy interest rates and in the case of loans, a lengthy commitment. For most companies, especially new ones, their biggest problem is the fact that clients have 30-60 days to pay an invoice. If this is your company’s biggest problem, invoice financing could be the ideal solution.

When companies sell goods to another business, the product/service is delivered and an invoice is attached. The credit terms offered depends on the agreement between the parties but 30-60 days is industry standard. Larger clients tend to ask for the longest time to repay. As the company does not want to lose such a valuable client, they readily agree. Unfortunately, this can have a detrimental effect on a business as it waits patiently for payment. Companies with poor cash flow are entirely dependent on their clients to pay up on time. Late payments can really strike a severe blow to a company’s plans.

Invoice financing solves this problem as a provider ‘buys’ the invoice from you, paying you at least 80% of its value up front. The rest of the money comes once the client has held up their end of the bargain. As a result, your company will no longer be hindered by slow paying clients as the majority of the invoice money is readily available. This improves cash flow immediately and with it, a company’s future prospects.

Invoice financing providers run a full background check on a company and all of its clients. If they feel that a debtor has poor credit and is too great a risk, the provider will not accept an invoice from that company/individual. Their ideal company is one with a list of steady clients with good credit histories. Providers are also reluctant to help companies that are overly reliant on a single client.

If your business has a number of clients but a cash flow problem due to the credit terms offered, invoice financing may be the best way for your company to get the funding that is so vital to its development.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.


Back to top