Improving Your Cash Flow – How Invoice Financing Could Help

Many companies suffer from cash flow problems. Profit margins can be tight, and few enterprises are the well-oiled machine they would like to be. This means that if just one customer is late when it comes to settling an invoice, your whole enterprise could potentially grind to a halt. 

The solution, of course, is to ensure immediate payment of any debts, but this is easier said than done. Many industries simply don’t work this way, and trying to change the rules can be a sure-fire way to send your customers elsewhere. 

Invoice financing is an umbrella term for methods that companies can use to raise cash against money that they’re owed by clients. Low risk, low cost, and guaranteed to secure an immediate injection of capital into a business, they can be an ideal way to solve your cash flow problems, and as a result they’re gaining an increased following amongst business owners.

There are two main types of invoice financing: discounting and factoring. Could one of them be the ideal solution to your money troubles?

Invoice Discounting   

Invoice discounting is one of the most common methods of invoice financing, and thankfully the concept is quite easy to wrap your head around. It can be used to release around 90 per cent of the cash value tied up in your sales ledger, meaning that you can take immediate advantage of your profits every time a transaction is made. 

As a rule, invoice discounting is better suited to larger companies with efficient administrative processes than it is to SMEs or fledgling businesses. This is because it leaves a significant amount of responsibility in your hands, such as sales ledger management and invoice collections. This means that your customers don’t have to know that a third party is involved at all, as client payments and dealings still go through you directly. The process is completely confidential.

Invoice Factoring

An alternative to discounting is invoice factoring. This methods works in a roughly similar way, although it often holds a greater attraction for SMEs and start-ups than its counterpart. It allows a large amount of responsibility to be delegated to your factoring provider as part of the service, making your job a whole lot easier. 

So how does it work? Once again, funds are injected into your business almost as soon as transactions are made, helping to increase your company cash flow. However, unlike discounting, factoring providers will also assume responsibility for collecting payments from customers on your behalf. 

If your company cash flow is foundering, could invoice financing be an ideal solution for you?