Back from the brink: helping a business recovery with Invoice Finance

Even the most successful business can suffer when a large client takes too much time to pay - or a large customer goes bust with a big pile of outstanding invoices. Not having the cash coming in that you were counting on can trigger a cashflow crisis. In the worst cases, the failure of a major customer could take your own business with it.

This was the situation facing a client who came to Rangewell for help recently. Their business was in graphic design, and things were going well - until their largest client suddenly announced that it was insolvent.  

“They were a prominent name in building services and had government contracts. They seemed to be blue chip - so we didn’t worry when they were a little late one month with payment of our invoice. But it happened again the next month, and the month after that we heard that they were going into receivership.”

Our client was shocked to find that he was suddenly going to be without his biggest income stream and that his business was going to lose more than £75,000 of revenue. It was money that was already earmarked - staff needed their wages, the landlord for their London studio needed rent, and there were business rates to pay.

The failure of the client also left them with invoices for print work, which meant they would have to find another £15,000 to avoid problems with the printer.

“We don’t have huge overheads. Most of our business is based on our own graphic design skills - but when the client went down I realised that we had some real problems. We just didn’t have the cash to stay in business.”

Our client did what he could to cut costs. He let his freelance designers go and even sent his car back to the dealer, but he still found it impossible to pay off all the bills he had owning. However, he did manage to find a number of new business prospects who were keen on what he could do for them. Some were happy to commission work, but the best terms that he could arrange involved a 30-day wait for payment.

He could bring the work in that he needed, but he would not be paid in time to save his business.

“Waiting for weeks and months for payment is usual in our line of work. But because of the crisis with our client, we could not afford to do it anymore.”

It’s a problem which is shared by many other small businesses who work with large customers. Large corporate customers often expect to pay invoices in 60 or even 90 days as part of their standard terms of business. By paying their suppliers slowly, they improve their own cash flow.

Our client was desperate to get his business back on a sound footing, and managed to get some extra time to pay from some creditors - but although his efforts seemed to provide a lifeline, it was not going to be enough.

Looking for a solution to cashflow problems

Our client initially wanted to explore the possibility of setting up a large cash loan to cover the shortfall, but we explained that his current financial position would mean most lenders would be unwilling to help.

But we saw there was a possible solution - and explained that Invoice Finance could provide the cash he needed.

A type of Invoice Finance, known as Factoring, can provide a simple solution for business finance even if there are outstanding debts or an adverse credit history. With Factoring, the finance is based on the strength of your debtors and your invoices. This means that as soon as you issue an invoice your company can have an immediate cash payment.

Does your business suffer from long payment terms? Could Invoice Finance be right for your business? Apply today or find out about what Invoice Finance can offer.

Instead of waiting 60 days or more to get paid for work, it could mean our client would be paid right away - providing the cash he needed to pay off his creditors and keep his business afloat.

“I had a way to get paid immediately. It is unheard of in our line of work - but it would mean that I could have a big cash boost right away. It meant that we could pay off everyone and keep the doors open.”

How Factoring worked for our client

With Factoring, the finance provider takes over your entire debtors book. You send a copy of each invoice to the funding provider, and they will make an immediate advance based on it. This can often provide 80-90% of the value of the invoice, though this amount varies with suppliers.

You will receive a second instalment once your customer pays on their usual terms.
This second payment will be less the invoice provider’s fees, which will be around 1.5% to 3% per 30 days. The actual charge will be based on your company’s risk profile, and the sector you work in.

Many businesses find that the ability to get paid fast - and to maintain cash flow - makes the charge more than worthwhile.

For our client, there was another important benefit from Factoring. The provider will use its own professional credit control team to chase payments, removing an administrative task, and letting him concentrate on his core business.

Getting back to business

Our client was able to call on regular cash flow, which would let him have the sound footing to rebuild his business. The costs imposed by his factoring arrangement were initially higher than standard, but these will be reviewed after six months.

At Rangewell, we work closely with all our clients to understand their circumstances before we recommend a particular type of finance. If you want to find out what Factoring, or any other type of Invoice Finance, could do for you, talk to our team.

Our service - and their expertise - is absolutely free

Whatever your line of work, if your small business works to provide goods or services to large businesses, late payments will inevitably cause you problems. Call us to see how Invoice Finance could help you, and which type of facility is right for your business. Find out more or apply today.