What are the advantages of invoice finance for your cash flow management?


In these uncertain economic times, it’s more important than ever for entrepreneurs and small businesses to maintain healthy cash flow. Having money in the bank to fulfil orders, keep up with payments and grow your business can be a tremendous weight off your mind day-to-day.

If your business trades on credit terms with clients, it may be possible to release funds tied up in outstanding invoices by availing your company of invoice finance. By increasing your working capital, your business has greater scope to expand.

Whether it’s accepting bigger contracts of work or investing time and money into untapped markets, invoice finance frees up much-needed cash that lenders will recoup over the short-to-medium term.

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Let’s say that you raise an invoice with a client for £10,000 with payment terms of up to 60 days. Your business could seek invoice finance of £10,000 from a lender upfront, with the lender repaid directly by your debtor.

Invoice finance is also one of several loan types available as part of the Coronavirus Business Interruption Loan Scheme (CBILS), which is designed to offer up to £5 million in loans for SMEs interest-free for the first 12 months. The UK government has extended CBILS until 31st January 2021, in a bid to help firms affected by COVID-19 through no fault of their own.

The government’s British Business Bank has selected Funding Options as a designated platform connecting more than 120 lenders to eligible small firms, often after they have been refused by their banks. Funding Options work with 40 accredited CBILS lenders. The eligibility of the scheme has also been extended in recent months to appeal to businesses that were previously ineligible for CBILS but could have easily obtained business finance elsewhere. This enables more businesses to look to invoice finance as a creative solution to any cash flow disruption.

Overall, there are several benefits to invoice finance that can improve the agility of your company’s cash flow:

1. Buy more stock and take advantage of bulk discounts

Increased working capital gives ambitious businesses the freedom and flexibility to increase their stock orders with suppliers. It’s possible that buying in greater volumes can secure bulk discounts that give your business more profitable margins at the point of sale. It may even be possible to negotiate early payment discounts with suppliers given that you can guarantee faster payment.

2. Your lender takes care of credit control

When you secure invoice finance, the funding provider then assumes the role of credit control. They will ensure that your debtor has a good credit history and is a credible client to lend against. You can focus on the day-to-day running of your business in the knowledge that your lender will take care of outstanding debts.

3. Access invoice finance in a matter of hours

You can get your hands on invoice finance the same day, providing your lender is happy to accept the risk. Typical invoice finance applications require minimal paperwork too, with a growing number of applications now able to be filed online.

4. Invoice finance doesn’t have to be carried on your balance sheet

Traditional business loans from high-street banks are naturally listed on your company’s balance sheet, serviced by monthly interest fees. Given that invoice finance is a much shorter-term commitment with lenders, it doesn’t hang like a millstone around your business’ neck, whilst giving you quick access to cash.

5. A credible choice for businesses rejected for traditional finance

Given that your business’ sales ledger is used to secure invoice finance, your company does not need an extensive credit history to improve its cash flow. If you have struggled in the past to be approved for traditional finance from high-street banks, invoice finance could provide you with a legitimate and viable alternative.

In summary, invoice finance gives your business the chance to be immediately rewarded for the goods or services you’ve invoiced, putting cash flow back into your business to ramp up productivity and provide greater security.