Experiencing Cash Flow Problems? Invoice Discounting Could be the Answer

More and more modern businesses are proving the importance of invoice discounting. Whether these businesses are small start-ups or rapidly expanding, capital is the heart of every business and cash flow its lifeline.

As a company providing products or services to other businesses on a credit basis, you may already be experiencing cash flow problems. Even if you have 30 day terms, you might find your clients are working to varying payment terms of 60 days or even 90 days, it’s easy for your payments to become tied up in the sales ledger. This can make affording your own expenditures difficult. Borrowing from the bank to cover your finances may seem like the best option, but it’s often the most heavily administrated and time consuming, let alone the least cost-effective.

In these instances, a specialist finance broker becomes essential. A good broker can help identify the problems and tailor solutions to your needs with the right finance house that best suits your style of business. One solution they can guide you through is invoice discounting.

With an invoice discounting model tailored to your specific needs, a profitable business can draw money against its invoices immediately they are issues (as well as in the first instance get a payment from outstanding invoices. A discounter assesses what percentage of the outstanding sales ledger can be advanced, depending on your business up to 90%. Each month you will pay back more or less depending on the activity of your cash flow, with an interest rate based on the net amount of the advance.

All that is required of you is the continued administration of your sales ledger and debt collecting. This can prove beneficial when monitoring how much you can repay each month. Invoice discounting is an alternative, cost effective way of improving cash flow that’s flexible enough to support your fluctuating finances on a monthly basis.

Another benefit of invoice discounting is the support it provides you while working with clients of varying payment terms. invoice discounting allows you to build strong relationships with your client base without compromising on your monthly financing. Your customers don’t even need to know such a system is in place.

And as well as improving customer relations, invoice discounting can significantly increase your available funds, improving your spending power. This can be a huge advantage when it comes to negotiations and prompt payments with suppliers - essential for small businesses looking to grow.

So what are the costs involved in invoice discounting and how do they compare to other forms of borrowing?

Alongside an administration fee based on your turnover and a monthly charge for your discounter, you’ll need to pay back interest on the advance. This interest rate is often comparable with that of an overdraft, ranging from 1.5 per cent over base rate to 3 per cent over base rate and calculated on a daily basis. And, with a number of independent financers and banks both offering invoice discounting, the rates are very competitive.

Unlike an overdraft, which may need to be renegotiated or give your business a poor credit rating, invoice discounting can help keep your business in credit. With the help of the right finance broker, sourcing the best discounter for your business is even more straightforward.

If you have an annual sales turnover averaging £200,000 or more and a minimum net worth of £25,000, with effective credit history and profitability in your business, invoice discounting could be the best step to solving your cash flow problems.

To find out more about invoice discounting for your business, contact Martingales for a free assessment. Martingales specialise in taking the strain out of corporate cash flow with bespoke finance solutions and invoice discounting.