Cashflow Clinic: Common Questions Asked When Businesses Use Invoice Finance

Q. I run a recruitment company and struggle to pay temporary staff when I haven’t yet received the money in from the client. My overdraft facility is not easily increased when I need the cash. Is there anything I can do to assist with this?

A. This is a common problem for many businesses, not just those in the recruitment sector. Whilst there is no problem with the business, quite the contrary in fact,poor cashflow is halting growth. An increasingly popular solution for this type of scenario is Invoice Finance, which means that as the invoice to the client is raised, the funder will advance up to 90% of the value of the invoice immediately. This provides the funds for day to day business and winning new contacts. Once the customer settles the invoice, the remainder is then released minus a. This type of funding provides far greater flexibility than an overdraft as it grows with your business. Also, it can prove more cost effective as some providers are offering 1% over base rate on your facility. In addition, it is possible to have an outsourced credit control function attached to the facility if your customers are slow payers.

Q. I find it difficult to budget for VAT each quarter. I try and build a reserve in my bank based on my estimations, however the VAT return always drains my cashflow. How can I manage this situation better?

A. This is a situation many businesses find themselves in. Whilst everyone knows that VAT is due, the bill always hits thedesk at the wrong time. One option is to write to the HM Customs and Excise and switch to a monthly VAT return. This doesmean a little more paperwork but the cashflow impact is much less. The second option is to improve your saving scheme. If you finance you business through a debtor finance solution, then you can ask the finance provider to save an agreed amount in a reserve fund for you and, when the VAT is due, ask the finance provider to release this money to you.

Q. My company is an electrical contractor and we have lots of big customers and our work takes several months. We have to invoice in stages and every time I ask my bank to increase the borrowing to help me grow my business, they talk to me about Factoring. However, when the bank looks at my business they say that Factoring can’t help and, to add insult to injury, they won’t increase my overdraft. Who will fund my business better?

A. If the only assets you have are your growing sales, the quality of your work and your customers, then a suitable finance solution can be found. The key is to find a specialist finance partner that takes the time to understand the nature of your business and will focus their funding on the positive aspects of your business.

Q. Debtors take longer and longer to pay and, even though I have an Invoice Discounting facility, the funder does withdraw funding after a certain period of time. I then get blamed for being poor at credit control.

A. Many companies use their creditors to fund their business, this not only means that you have to wait longer to be paid, it also increases the risk of the debtor failure which will have a greater impact your business. There a number of options, the first is to talk to your finance provider and get them to look at a non-recourse finance solution, this will increase the funding period and provide insurance against non-payment and debtor failure.

John Mce writes for Hilton-Baird Financial Solutions who offer free independent business finance advice and has access to a number of finance partners helping over 2,000 UK businesses raise extra capital including the use of Invoice Finance.

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