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No matter what type of business you’re in or the stage your business is at – the last thing you need is unreliable cash flow.  Remember the majority of business failures are actually a result of cash flow problems and not lack of profit.

Experian reported again recently that “Late Payment of Invoices Plagues Britain’s Companies” they state that:

“UK businesses are still taking two months – 60 days – to pay their bills, almost exactly the same as a year earlier, new research published by Experian(R), the global information solutions company, has revealed. Seven years after the introduction of The Late Payment of Commercial Debts (Interest) Act, which was intended to speed up payments, the average time UK companies take to pay their bills is still two days longer than before the legislation was introduced.”

“Richard Lloyd, Managing Director of Experian’s Business Information division, said: “Insolvencies in the UK last year hit their highest level since 2002.  Late payment by suppliers plays a major part in business failure and a rapidly deteriorating payment trend is very often a warning sign that a company is in financial difficulties and heading towards insolvency.”

Poor payment puts a great deal of strain upon a business.  Add this to the fact that banks remain effectively “closed” in terms of investment for businesses – how can you keep cash positive and grow your business?

The Belfast Telegraph stated that more companies in Northern Ireland are turning to Invoice Finance.

“Where invoice finance was once perceived as a temporary measure to overcome common obstacles such as customer late payment and issues with cash-flow, the tougher lending conditions experienced both here and overseas has changed perception…”

Surely it is sensible for businesses across the UK to consider similar solutions.  Invoice Finance offers the option of flexible finance using sales invoices for collateral.  Factoring or invoice discounting remove the stress and strain of collecting cash from customers and permits a business owner to concentrate on business development – so why wouldn’t you consider it?

There are plenty of emotive issues around factoring and plenty of misconceptions, but surely if the economy is going to be tougher; perhaps it’s going to get better, but either way it’s time to rethink business finance.  Business owners are never really enthusiastic about their overdraft facility, it can be withdrawn at any time and it’s stressful to renegotiate.  On the other hand invoice finance (factoring and invoice discounting) provide funds that grow with your turnover.

You’re probably looking at new ways to market your business; new routes to market; perhaps you’re looking to reinvigorate existing routes and markets. So why not give yourself the funds and time to do this by reconsidering your business finance options?

You can compare invoice finance companies here.

The largest asset for many businesses, especially small and medium-sized companies (SME), is often their overdue sales invoices.  Most SME don’t have the resources, accounting systems or procedures to effectively collect their overdue sales invoices so invoice factoring can be a sensible alternative.

With invoice factoring, or invoice finance, you receive a cash advance almost immediately, upon submission of an invoice, and your debt collection and sales ledger management is performed for you by your factoring company. The cash your business receives can be used to reduce your own business debt or for investments to ensure business growth.

Invoice factoring provides flexible finance and should be considered as an alternative or replacement to the traditional bank overdraft facility. Not only does a factoring arrangement provide all the credit management services; factoring finance grows with your business and therefore doesn’t need renegotiating every time you need additional funds.

Many businesses prefer to keep their financial arrangements private and away from their customers.  A confidential factoring facility provides finance against your invoices and the factoring company chase outstanding invoices but in the name of your business.  This way your customers don’t know you are using factoring finance.  Confidential invoice factoring will boost your business cash-flow, releasing available working-capital tied up in your sales ledger, but the dedicated sales ledger management service, which is an essential part of all factoring solutions, will be provided by the factoring company on a confidential basis.  This facility was previously only available to companies utilising invoice discounting.

Invoice discounting is generally available to businesses with a strong balance sheet and a healthy turnover, often in excess of £1m. Invoice discounting differs from factoring because with invoice discounting you continue to run your own sales ledger and collect from your debtors. As you continue to carry out credit collection, it’s possible to have a confidential invoice discounting arrangement and your customers remain unaware.

How Confidential Factoring Works

You receive up to 90% of your customer invoice values when you raise and submit them to your customers and send a copy to the factoring company.  The factoring company will provide a dedicated telephone number that will be used for all incoming calls from your customers.  The phone will be answered in the name of your business and therefore maintaining confidentiality of the service.  All customer correspondence should reflect your corporate brand.  The factor will provide you with credit control management and your customers are unaware that you are using the service.  Confidential factoring relieves the pressures of you chasing debts and provides immediate working capital that can be used to fund expansion.

Is Confidential Factoring Right For Your Business

With factoring, the lender takes over management of your sales ledger and actively chases in payment, which can in itself be an advantage if your credit control has been poor. In some cases the factoring company will allow an arrangement where the client-handles-own-customers (CHOCs ) for key accounts – where the business retains control of the contact with customers, and some factors have developed confidential factoring – although not all.

Normally as your business starts to grow the speed with which you collect your cash won’t get any faster and this can result in cash flow problems which ultimately hamper growth.  You need to fund the increase in orders and your expansion,but your customers continue to pay you in 60 days, 90 days or worse.

Of course you have the options to restrict your credit to your customers, with-hold delivery or enforce a strict collection policy and stop-list, but these solutions are hardly ideal.  When you use invoice finance you are generating the short-term borrowing you need through increased sales – using your sales invoices as collateral. Many business owners don’t like the idea that the factoring company collects directly from customers on their behalf.  Customers and employees are then aware of how the company is funded and there are many misconceptions about companies using factoring finance.

Confidential factoring is not always offered by factors as part of their invoice finance solutions; but if you want to benefit from dramatically improved cash flow, using your sales invoices as collateral and to outsource your credit control but don’t want you customers to know; then confidential factoring might well be the ideal solution.

Other articles that may be of interest – Six Common Misconceptions of Factoring, ten reasons to use factoring in your business.

To talk to factoring companies about your requirements – start here – get factoring quotes.