What is Working Capital Finance?

25th September 2017

Around 4 in 10 businesses fail before they can reach their 5th trading year¹. Every day we rely on customers purchasing our goods and services to ensure our business’ survival, but working capital is what keeps us afloat and allows businesses to move forward. If your outgoings outweigh what’s coming in, that’s when you begin to feel the pressure from negative working capital.

But with Working Capital Finance, you can support these costs using specialised Business Finance products including, but not limited to:

What is working capital and how is it calculated?

Working Capital can be described as the cost of keeping your business’ operations running. It takes into account the worth of your current assets and current liabilities. Current assets are valuable assets logged in your business’ balance sheet, and can be sold in under 1 year. Meanwhile, your current liabilities may include outstanding debts, staff wages, utility bills and tax demands, all of which can be paid off within 1 year. So, when calculating your business’ working capital, you take the total worth of your current assets and deduct your total current liabilities. For example, if you have current assets worth a total of £40,000 and have current liabilities totalling £46,000, your working capital is -£6,000.

Ideally, you want a positive working capital, but that can be a difficult task to achieve, especially for developing SME businesses. A negative working capital can cause investors to believe that your business is having trouble paying off debts, and may even be heading towards bankruptcy if the situation doesn’t change. That’s exactly why Working Capital Finance is key in allowing you to boost your working capital and strengthen your current assets, ensuring your business’ long-term future.

If your business’ Working Capital is spiralling out of control, the time to act is now!

How could a Merchant Cash Advance help?

The Merchant Cash Advance is a uniquely flexible way of acquiring an advance using your business’ credit and debit card sales, allowing you to fund any area of your business. In order to qualify, your business must be able to support card-based transactions. When applying, you’ll need to present lenders with your latest sales reports for 3 or more consecutive months. This will include card processing statements and bank statements, allowing lenders to develop an in-depth understanding of your card sales. Should they agree to lend, the size of the potential lump sum will be based on an average using your submitted sales reports. As such, should your business earn roughly around £5,000 each month in card sales, the lump sum presented will be in the same region.

After receiving the lump sum, often in as little as 48 hours of applying, you will be subject to a Flexible Monthly Repayment Scheme. This allows lenders to retrieve an agreed percentage of your potential monthly card sales, sometimes referred to as Holdback or Retrieval Rate. As a result, the repayment scheme can adapt itself to your business’ monthly card sales, preventing you from parting with more than you can afford each month.

How can Invoice Finance help?

Invoice Finance lets you access money held in unpaid invoices that your business may have accumulated. It’s a great means of providing support, acquiring cash fast and supporting any of your business projects. So, if you’re a business owner with outstanding invoices, or regularly work around them, Invoice Finance can be invaluable. But when considering this method of finance for your business, it’s essential for you to understand the two types on offer and how they work.

Invoice Factoring: lets you borrow a lump sum equivalent to around 90% of an outstanding invoice’s overall value. With Factoring, you assume the role of the credit controller, ensuring that payment owed by the customer in question is forthcoming. Until you’ve received full payment, or begin taking regular instalments, you won’t be required to begin the fixed monthly repayment process, plus interest. However, lenders may specify a cut-off period stating exactly how long they’re prepared to wait. Should this period expire, the lender will begin the repayment process, regardless of whether or not you’ve been paid.

Invoice Discounting: allows you to borrow up to 80% of an outstanding invoice’s total worth. With Discounting, the customer responsible for the invoice pays the sum owed directly to your lender. You also have the option of making yourself the credit controller or making use of the lender’s ledger service, if available. Once the lender has received full payment from your customer, you will be required to transfer the remaining 20% into a facility run by the lender. After the deduction of any fees and service costs the remaining sum, or balance, is returned to your account.

Strengthening your working capital with Asset Refinance

Asset Refinance allows you to unlock the value tied up in any of your existing and unencumbered assets and is a great way of releasing equity in order to bolster your business without having to wait months for a decision from your local high street bank. Technically a type of secured loan agreement, as the funder takes security in the assets, terms can typically range up to 5 years, during which you will be required to make fixed monthly repayments. As such, should your business fall behind in making fixed monthly repayments, the finance lender can seize the assets in order to recover the remaining costs. At the end of the term, and once the finance has been fully repaid, ownership of the asset is returned to you.

Find the right solution for your working capital

Ensuring a constant supply of goods and services is vital to your business and your customers. Yet, sometimes, it can be difficult to live up to expectations. As well as the time and effort that it consumes, keeping your day-to-day operations running at peak efficiency is vital. That’s why, when seeking to bolster your working capital, you need a business finance solution that caters to your exact needs. So, if you’re concerned about your working capital, see how Working Capital Finance can help your business.

Expand your business’ horizons. Explore what Working Capital Finance can do for you… today.

¹ Ben Lobel; Business failure: Four in ten small companies don’t make it five years; 24/08/16; smallbusiness.co.uk.

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