Let’s face facts; over the course of the last decade we have seen a business funding revolution that has had a significant influence across the globe.
This has not only created new and exciting vehicles such as crowdfunding, for example, but is has also challenged the outlook of entrepreneurs and made traditional methods such as bootstrapping increasingly accessible. As the range of viable funding options has grown and diversified, businesses of all sizes have also been able to capitalise and SMEs have once again emerged as key engines for the UK economy.
The Emergence of Invoice Factoring and its Key Benefits to Businesses
Perhaps the most exciting funding vehicle to emerge in recent times is invoices factoring, which enables businesses to leverage the orders on their sales ledgers and optimise their respective levels of cash flow. With this in mind, here are some of the key advantages that are available to businesses through invoice factoring:
Reduce Long-term Debt Within the Business
Historically, the only way in which businesses could leverage their sales ledger is to present confirmed orders to their local bank and secure a loan. With this came long-term contracts and a slew of hidden fees, however, along with a rate of interest that would encumber businesses with long-term debt.
Invoice factoring does away with such complexities, by enabling companies to effectively sell their accounts receivable to investors and receive the money ahead of time. The money is then simply repaid once each individual invoice is settled, creating a short-term cycle of debt that will only last for 30, 60 or 90 day periods on average (depending on the terms of your client agreements, of course).
Optimise Cash Flow Without Compromising Your Client Relationships
Whether you operate 30, 60 or 90-day invoice terms, as a start-up venture you may struggle to optimise your cash flow while you await repayments. In your haste, this may cause you to chase clients a little too tenaciously, creating a strained relationship that is not conducive to repeat business.
Invoice factoring negates this, as accounts receivable can often be sold within a period of 24 hours (offering genuine breathing space to fledgling companies). This means that your clients can be allowed to settle the invoice according to the precise terms of their agreements, which in turn creates a far more amicable partnership going forward.
Drive Organic Growth In Line With Demand
When you borrow money, it is difficult to secure an amount that is both desirable and within your commercial means. There is no such issue with invoice factoring, as you can only ever borrow the amount that you have earned in sales and not a single penny more.
This not only creates clarity within the business, but it also helps you to drive organic growth that is line with demand. As a result of this, you will never borrow more than you can afford to repay, while cash flow will only improve noticeably so long as you have the accounts receivable to support defined growth.