The underrated financial tool to get you through tougher times

Cash is king. When interest rates are rising, energy bills are set to triple and the overall cost of living has risen to a historic high, this is especially true. And all of these things can lead to a lack of consistent cash flow, which is one of the leading causes of a business failing. With economic instability building thanks to the highest rate of inflation in 40 years, small businesses need tools in place to weather what could be the next recession.

What are businesses expecting?

You’ve probably seen the headlines: the historic fall of ‘real pay’, the decline in job vacancies, the cost of living crisis. Businesses need to futureproof themselves against a myriad of potential issues. You might already be experiencing, or expecting:

  • Supply chain issues: changes to manufacturing, logistics and stock availability
  • Increasing rental costs
  • Higher bills from heating and cooling offices, warehouses and factories
  • Changes in wages as a response to inflation
  • Employee shortages (some sectors are experiencing challenges following the pandemic and other global changes)
  • Seasonal availabilities for food and produce based businesses due to the climate crisis

These are exactly the kinds of funding issues invoice finance is the perfect financial tool to support you with. Last week, we shared a refresher on this flexible and fast funding tool – read it here if you’re in need of an introduction to how it works, the most common uses and its many benefits. This week, given the latest headlines, we’re looking a little deeper into why invoice finance is more important than ever.

How can you protect yourself?

A lack of working capital can land a small business in very hot water, very quickly. It’s no longer enough to be ‘ready’: a business needs to be proactive rather than reactive to potential cash flow blockers. And guess what? If your business is being affected by problems like these, it’s pretty much a given that the businesses you deal with are as well. That means that companies owing you money may be asking for more lenient (read: longer) payment terms (if they’re paying promptly at all), not delivering stock on time, or simply not delivering. Your business needs to be able to cope with this in order to survive.

So what can you do to combat these factors? You might want to over-purchase stock so you’re ready for supply chain issues, create a cash pool to dip into to ensure wages are paid on time, or even use that same cash pool to prepare you for growth. Maybe you haven’t been affected too badly, but you want to make sure you come out bigger and better than ever? Without access to cash, growth becomes harder to achieve.

What can you do to tackle economic pressures?

While there’s no one-size-fits-all answer to boosting your cash flow and financial firepower, invoice finance is certainly one of the most flexible and resilient options available. And it’s ideal for situations like right now. Put simply, when you need to bridge a gap in cash flow, invoice finance presents a low risk option. Why’s that? With invoice finance you’re borrowing against something that is essentially guaranteed to get paid: an invoice for services completed. So you can think of your invoices as an asset –an asset that can be borrowed against for the short-term and an amount that doesn’t feel like too much of a gamble.

Invoice finance can be used long term, in short-term bursts. Confusing? Let us explain: it’s ultimately a growth tool. It’s designed to grow with your business, without the long-term commitment of other, higher risk lending facilities. Businesses can use it for years, with invoices – either the number of invoices or amount on them – growing as they expand. The limit is simply the size of your invoices.

That’s the long-term aspect. The short-term? No matter the size of your facility, you’ll be borrowing for a maximum of 90-120 days with most lenders. Another bonus is that the facility does not require a personal guarantee, meaning there is less on the line for Directors.

How flexible is invoice finance?

Another brilliant positive: you can draw down as and when you need it, making it less restrictive for your finances. There’ll be periods where you don’t need to dip into the pot – great! Then there will be times you desperately need that access to cash, and fast. Knowing you have the freedom to choose which invoices to put forward (without committing your whole ledger) makes covering those cracks in cash flow a breeze.

An invoice finance facility also helps businesses create realistic forecasts, meaning they’re less inclined to make drastic business decisions. What does that mean? They can see when the money goes out and when it comes back in, and any gaps that may need to be covered. Maybe you’re just looking to cover the off-peak season or pay an unexpected bill. Perhaps you only need a couple of small invoices covered while you wait for your customers to pay up. With invoice finance, you’re in control of your cash flow.

In times of uncertainty, the best businesses need to be flexible. And the best finance to support that needs to be just as flexible, if not more. Invoice finance is exactly that, and it helps businesses stay agile in difficult periods. We were founded after the financial crash, and since 2011 we’ve been developing our invoice finance offering to suit all kinds of situations.

We now offer two subscription options based on how you’d like to commit:

ANNUAL

Our annual subscription is a more cost-effective option for businesses. Users pay a fixed monthly fee, signing up for 12 months minimum.

MONTHLY

Our monthly rolling subscription is slightly more expensive month-to-month but offers businesses flexibility to cancel with 30 days' notice.

If you’d like to learn more about how a facility can help your business, click here.