What is Invoice Finance?
Today’s finance market for SMEs
Following the 2008 financial crisis the reluctance of banks to fund small or risky ventures has meant that businesses now need alternative ways to support their cash-flow than the traditional overdraft or secured loan. This may be to cover short-term funding requirements, or bridge the gap between customer orders and supplier payments to help the company meet its funding obligations.
60% of UK SMEs experience late payments from their customers (1)
A Survey published by the British Business Bank in February 2016 show that working capital or cash-flow is the most common reason for small businesses to seek funding, so it continues to be a major challenge for SMEs. Indeed, 60% of UK SMEs experience late payments(1) and it is a significant contributing factor to the 65% of businesses that over trade and fail due to financial issues.
Research by Xero also confirmed that“small business owners are spending an average of 10% of their day – which equates to two days per month – chasing late payments, with invoices an average of 14 days overdue before being settled.”
Introducing Invoice Finance as an alternative
Invoice finance is becoming an increasingly popular alternative to the overdraft, which is becoming harder to secure and the cost of which is often higher than other sources of borrowing, particularly if a company exceeds the agreed limit.
Different types explained
You will hear about Invoice Factoring, Discounting and Financing, but what do they mean?
- Invoice factoring is where you outsource the collection of payment to a third party, so they contact the customer on your behalf.
- Invoice discounting is the same as Invoice Finance, where you collect the debt by yourself keeping control of the relationship you have with clients.
You will also hear about asset finance, trade finance, stock finance, even art finance, all developed to suit a specific purpose, depending on what you need the funding for. In these cases, it’s always recommended to get advice to ensure you understand the fees and interest that will be payable.
The nuts and bolts
Invoice Finance means your provider will be able to advance an amount of your invoice or entire sales ledger to you until the payment due date, for a small fee. Invoice finance enables companies to immediately release cash tied up in unpaid invoices, freeing up working capital and facilitating improved cash management capabilities.
Using Invoice Finance with success
The challenge of securing the right finance to support business growth is not a new one. The article by GrowthBusiness.co.uk shared five companies which are successfully using invoice finance to close acquisitions, satisfy big contracts and solve seasonal cash-flow issues.
- Satago has taken a new approach – funding invoices from when they are raised, up until when they are due, and sometimes even when they are overdue. This ensures as much value of an invoice as possible stays in the pockets of SMEs, making their cash-flow more reliable, reducing the need for reliance on funding and keeping costs to a minimum.
- In real terms, Satago will advance up to 85% of the invoice value – for a single invoice or several - immediately transferring the amount to your bank account. The fee is usually 2-4% of the invoice value financed per 30 days. The fee is dependent on a number of factors such as your credit risk and that of your customer when we buy the invoice.
- The Satago all-in-one cash-flow solution means SMEs can be equipped with effective finance solutions to cover the funding gap – and a proficient credit control strategy, with a cutting-edge debtor tracking system and integrated credit risk data, to help avoid the issue of late payments and to cut down the time chasing payments – SMEs can feel confident they are in control of their cash flow, and positioned to optimise their sales to the full.