The availability of cash for most businesses is vital to agility and ability to seize market opportunities as they arise – or equally to smooth out those lumps and bumps in the road. That is why ineffective cashflow management is cited as a major cause of sleepless nights for business owners. Afterall, how can you control when your client pays?
In this post we will look at the variety of simple financial tools at your disposal that proactively manage the availability of cash for when your business needs it. The market is bursting with a broad range of financial products to smooth over all kinds of cashflow lumps and bumps. Solutions can be short-term or longer term, and the flexibility is almost endless.
Over recent years the competition in the cashflow finance market has driven a large reduction in interest rates, an increase in available options, flexibility and service; making solutions faster and even easier to use than ever before.
Broadly there are three main types of finance designed to improve your business cashflow:
- Revolving Cashflow facility: This facility behaves similarly to a bank overdraft, in that interest is only charged when funds are withdrawn and can be repaid at anytime. We have lenders who will put the facility in place for free, meaning interest is only charged when the service is used. Lenders typically lend between £1,000 – £200,000, with interest rates at 2% pcm.
- Invoice Finance facility: This allows you to borrow against the value of your invoices. It is most commonly used by rapidly growing companies, start-ups and established businesses where clients have long payment terms or concerns over chasing debtors. Invoice finance allows you to draw down from the lender up to 90% of the value you have invoiced your client, immediately, before the client has paid. When the client pays, you then receive the remaining balance less any interest or facility costs.
Invoice finance is fast and flexible. Lenders are competing to provide the best service with a wide variety of choice for borrowers, options include:
- Subscription or Pay as you go – How many invoices do you want to fund against and how regularly will you use your facility.
- Fully-managed debtor collection – This is an optional service where you can choose to transfer the responsibility for debt collection to your lender. This is called invoice factoring. Some lenders will also offer protection against bad debtors as part of the service.
- Multi-currency – international firms can use invoice finance in multiple currencies as well as access 100% export costs.
- Accountancy software integration – If you are using Xero, Sage50 or Quickbooks etc some providers will integrate the facility directly into your software package, making it simple to manage. Alternatively most providers will offer an online portal.
- Tax or VAT bill facility: This is a short term loan designed specifically to borrow the value of your VAT bill on a short term basis. Using the value of your VAT bill is a fast and simple measure for a lender to assess affordability for the loan amount being offered. This type of finance is used often, as delaying a tax bill payment can escalating quickly, sometimes spiralling into credit issues and in the worst cases a winding-up order from HMRC.
With such a wide choice of options to proactively improve your cashflow, it’s worth speaking with a whole-of-market broker to understand your options.
Liberate Funding is an independent and whole-of-market broker. As we are not tied to any lender, we work to get the best deal for you with the lender that is right for your circumstances. Get in touch for free no-obligation advice. Or fill-in the form below to arrange a call back from one of our team who will talk through your available options, providing a full quote in 24 hours from application.