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It doesn’t pay to wait: Supporting a business with Invoice Discounting

Published on 21st December 2018 - Last update on 29th June 2020

Cashflow is crucial not just for business success, but for survival. We recently worked with a large commercial laundry which was facing a cashflow problem - and found them a solution with Invoice Discounting.

“We run a large laundry business serving North London and out to the M25. We have contracts with hotels, restaurants and uniformed service businesses. It should be lucrative - but we were finding money was getting tighter and tighter.”

The problem was a seasonal fluctuation in business - things tended to be noticeably slower in late winter and early spring. The business faced substantial ongoing costs for staff, delivery vehicles and, above all, power. Increases in gas and electricity were eating into margins, and the loss of a major contract from a restaurant chain meant the problem needed to be solved, fast.

“We saw that one of the biggest problems was the time it was taking to get paid. Our customers are mainly very solid and established businesses. We were never really worried about if they were going to pay, the problem was always ‘when’.”

The problem of late payment is a common one for businesses that supply other businesses. Customers or clients may have a deliberate policy of paying late. It may be an unfair practice, but it can be all too common. By delaying payment, they improve their own liquidity and cash flow at the expense of their suppliers. If you have customers who pay late, it means your money is in their bank account. In effect, you are extending them credit - giving them an interest-free loan of the money you have worked for.

The fact is - it does not pay to wait to get paid. It costs your business money - meaning you need to find the cash elsewhere, perhaps by borrowing. If it triggers a cashflow crisis, it could cost you your business.

Invoice Finance can provide a financial lifeline

All types of Invoice Finance can provide a solution to cash flow issues caused by slow-paying customers. So, instead of waiting for 30, 60 or even 120 days to get the money your business is owed, you could receive up to 80% of the value of those invoices straightaway.

“We were waiting weeks - and even months with some clients - to get paid. They took the view that payments were regular even if they were delayed, so it wasn’t a problem. But it was certainly becoming a problem to us.“

There are actually several different types of Invoice Finance, and finding the right type for your business is essential. One of the factors that prevent some businesses from taking full advantage of Invoice Finance for their business is a concern about a  potential impact on their relationship with customers as some businesses may be worried that customers will see the fact that the business is using the facility as a sign of financial weakness.

This is becoming an outdated attitude. Many of the most successful companies across the UK use some form of Invoice Finance to deal with slow-paying customers. However, in some more conservative sectors, some resistance to Invoice Finance may remain.

“We didn’t want to look as though we are struggling. Our clients depend on having ample fresh laundry. They might take their business elsewhere if they thought we were in trouble.”

Which is right for your business?

With some kinds of Invoice Finance, it may not be possible to avoid revealing that you are working with an Invoice Finance provider. Invoice Factoring is one of the simplest forms, and will usually be obvious to your customers. The lender or ‘factor’ will usually take on credit control, and their credit control team will contact your customers to ensure payments are made. This has the advantage of removing the need to chase up customer payments yourself, but may complicate relationships with your customers.

Invoice Discounting, as distinct from Factoring, still offers prepayments against your invoices, but can allow you to retain your own credit control activity. With Invoice Discounting, the provider will take over your entire sales ledger. They will advance cash, usually around 80%-85% of the value of each invoice immediately an invoice is issued, with the remainder, less their fees, once the customer settles the outstanding debt.  

This means that Invoice Discounting can be confidential - and can provide a solution which is not revealed to your customers. It can give your business all the benefits of immediate payment as soon as goods or services are provided, without revealing the arrangement to customers.

“We could have a big cash boost with Invoice Discounting, and with a confidential service, our clients would not need to know a thing about it.”

We found a Confidential Invoice Discounting facility that could answer all our client's needs.

How the service is provided

When large numbers of invoices are issued, and the volume of business remains fairly constant, the discounter can provide a regular sum, based the estimated total monthly value of debts. This is called bulk processing and usually requires a simple monthly reconciliation process. These days, a more common process is sales ledger upload, where software integrated with your accounting package enabling you to share your entire sale ledger with the discounter automatically, minimising the workload and reducing costs.

Do you need Confidential Invoice Finance?

Invoice Discounting could be suitable for your business if you’re running a B2B company that invoices in arrears and has a turnover of £250,000 a year or more.

Most providers will not assess the creditworthiness of your individual customers, but protect themselves against any potential insolvency by relying on your business having a wide spread of customers.

At Rangewell, we work closely with all our clients to understand their circumstances before we suggest a particular type of finance. If you want to find out what Factoring, Discounting or any other type of Invoice Finance could do for you, talk to our experts. Our service - and their expertise - is absolutely free.

“We have the cash we need to pay the bills as soon as each delivery run is made. It means no more cashflow headaches, and means we can afford to take on more contracts.”

If your small business works with large businesses, late payments could cause you problems. Call us to discuss what type of Invoice Finance could provide the answers you need, and how we can help you find the provider that is right for your business.

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Richard Mitchell

Richard Mitchell

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