I spent 10 years in the invoice financing industry at HSBC and saw the reality of how this form of finance can help small businesses. This month we heard that this form of funding has increased by 60% over the last 12 months which is not entirely surprising given that the economy has recovered recently but banks are reluctant to agree loans and overdrafts.
Invoice finance is particularly helpful for growing businesses as the facility grows with the business avoiding the time consuming, slow, and expensive process of frequent negotiations with the bank manager. Businesses are free to meet their potential because of the great flexibility that invoice finance provides.
During the very nasty recession in the early nineties I saw businesses that had their overdraft facilities removed, so they resorted to using invoice financing as an essential safety net. Without invoice finance these businesses would not have survived to benefit from the growth seen after that recession ended. Many became extremely successful because they were able to ride out the recession because they were properly financed.
When choosing any form of funding it is important there is a correct fit with the nature of the business and the experts in the invoice financing industry go through this process before they offer a facility to the business. They also explain the operational requirements to be sure that the facility will be sufficient. See three providers to see what each has to offer before you make your decision.
The amount that can be borrowed is a percentage of the ‘approved’ invoice value. This can be up to 95% but varies greatly depending on the nature of your business. Invoices need to be undisputed and for products and services which have been delivered. Most financiers require the whole sales ledger to be ‘assigned’ to them. In this way they have the security of the total amount owed to the business and the business owner maximises the amount they can borrow.
The relationship with an invoice financier is ongoing, with regular uploads or reviews of your invoicing and collections so there is an investment in time and an administration fee based on a percentage applied to your invoice value as well as the interest on the amount you borrow. It is worthwhile provided you receive the funding you need, you are expecting to grow and your margin is sufficient to absorb the percentage administration charge.
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I love the summer for sitting back and reflecting on the year. Thinking back to the dark days of winter and forward to the joy of Christmas time. Now is the ideal time to review how your business is going and as you revive yourself through holidays and sunshine you’ll be well placed to make any changes come the autumn.