Long invoicing payment terms that are enforced by large companies are a constant frustration for SMEs. When a small business is forced to wait 30, 60 or even 90 days or longer to receive payment, it can have a detrimental impact on its bottom line. One solution to this problem is invoice financing, which enables SMEs to release cash from unpaid invoices to make the most of their working capital and keep their business on the move.

The extent of the problem

Without cash, a business has little chance of growth, in fact when payments consistently take a long time it can sometimes mean a battle for survival. New businesses and those looking to build back following the pandemic are particularly vulnerable when waiting for overdue invoices to be paid as they could be left with no cash flow with which to trade, losing customers and income in the process.

The Federation of Small Businesses (FSB) says that: “around 50,000 firms close each year due to cash flow problems. If larger businesses paid smaller suppliers sooner, more small firms have the opportunity to thrive, create new jobs and boost our economy.”

At the beginning of the year, the government overhauled the voluntary Prompt Payment Code to encourage larger companies to pay small businesses on time. Around three thousand companies have signed up to the Code since it was established in 2008, but according to the Department for Business, Energy & Industrial Strategy: “poor payment practices are still rife, with many payments delayed well beyond the current 60-day target required for 95% of invoicing. Currently, £23.4 billion worth of late invoices are owed to firms across Britain, impacting on businesses’ cash flow and ultimate survival.”

How invoice financing can help your small business

Invoice financing enables a company to borrow money against a percentage of the value of a single invoice or group of invoices that are outstanding, so it can make the best use of its cash flow immediately not only to keep the business afloat but also to allow it to grow and thrive. A funder can even take over the credit control and chase the debtors on the company’s behalf if so wished.

Once the invoice has been paid, the lender will release the outstanding money, minus costs. It is a very effective way to ensure that businesses are not interrupted by a lack of finances due to late payments, and many small businesses use invoice financing on a rolling basis.

If you are waiting for invoices to be paid, but need access to that money now, talk to us about invoice financing.

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