Let’s start with some statistics. Last year in the UK 600,000 new businesses were formed. In the same year 300,000 businesses failed.
Of the failed businesses, it’s estimated that around 90% failed due to poor cash flow – an imbalance between their incomings and outgoings. And this is a common theme – perfectly viable businesses going under because their customers pay late or have long payment terms that leave a business unable to meet their own expenses on time.
Banks do offer a solution to this cash flow problem – factoring. But this involves signing your entire sales ledger over to a bank. You’re now charged a fee on every invoice you raise. The banks and companies that offer this service also tie you into long term agreements that are extremely hard to leave and require security on personal property such as a house or vehicle. In essence, once you sign a factoring agreement you’re now working for the bank.
But there is another way. Selective Invoice Finance – where a business owner can choose which invoice they want to fund – offers a flexible way for businesses to manage cash flow while not being tied into a long-term agreement they don’t need.
Here are a few reasons ways in which selective invoice finance can help your business grow (and avoid being another statistic).
Plan for success
The benefits of receiving up to 90% of the value of customer payments upfront cannot be overstated. Not only does this offer reliable cover for all manner of expenses, it allows for accurate projections of income, outgoings and total profits to be made for the foreseeable future. With this information on hand, you’ll be in a strong position to set out aims and expectations for the weeks and months ahead. Whether that means new customers, new staff, or new equipment and office space is for you to decide.
In position to make big decisions
Providing a steady stream of cash into your business, invoice finance will give you the financial power to take advantage of opportunities when they arise. That could mean buying new assets or diversifying into another area of business. Whatever expansion means for your company, selective invoice finance will provide the revenue you can count on to turn these ambitions into reality.
Set your own pace
The risks involved with taking on additional trading partners are removed by funding that is designed with bespoke accuracy, to replicate company earnings. There’s no need for overdraft and borrowing limits that have to be constantly renegotiated – just let your invoice finance provider know when new trade agreements are in place and they will do the rest. This ensures that expansion can take place at a rate you choose, knowing that your ambition will always be matched exactly by your financier.
Put your time back into expansion
Without the unenviable task of calculating ways to balance the books in the wait for slow payments, you can focus your energy on making your business bigger and better. Take some time to improve the company internally with training and fresh faces, or speak with potential clients and trading partners. As for issues of late or unreliable payments from existing customers, your financier can be the first port of call, needing little or no direct involvement from you. Most providers will communicate with difficult clients as part of their commitment to you, or at least offer advice on the best course of action in challenging situations.
Get to know your clients
Receiving the lion’s share of your invoice payments straight away you will soon find your company in a much stronger position, able to negotiate terms that better suit you and your trading partners. This could mean charging less for goods and services, in exchange for faster payments, that will in turn equate to a better rate for you. The increase in profit margin this creates could be used as cover for company expenses, or alternatively to reduce prices, making your company more competitive and more appealing to a wider market.
Grow alongside your financial provider
As your business expands and your client base increases, so do opportunities for your invoice financier, who will appreciate the security of financing a company with a reliable customer base. Stick with them, as they will have a vested interest in your success and be eager to help your company move forward. This could mean support and advice for your firm, as well as access to a list of potentially valuable contacts. A strong relationship and trust between you and your provider could also bring financial rewards, such as reduced fees and increased initial payments.
Whatever you have planned for your business, selective invoice finance can provide the financial security it needs to grow and succeed.