How to maintain cashflow as the economy contracts
Are late payments causing your company cashflow concerns? Invoice discounting can help your business to stay on track.
Times are tough for business at the moment. Tightened trading conditions, late payments and industrial action are affecting many UK companies, particularly small and medium-sized businesses. With rising costs, cashflow is limited. If you are stressed about paying salaries, daunted by HMRC deadlines or losing sleep over late payments, it might be time to consider invoice discounting as a simple way to keep a steady flow of cash for your business.
Addressing late payments
Most business owners have probably been stung by a late payment at some point or another. According to a report published in autumn 2022 by financial software company Sage, thousands of small and medium-sized enterprises (SMEs) are put under pressure because of late payments. SMEs make up more than 90 per cent of UK businesses and are owed, on average, £22,000. The same survey reveals that 40 per cent of SMEs are consistently paid late. The survey was based on analysis of 58m sales invoices between 2010 and 2021 from more than 110,000 Sage customers.
Late payment of invoices is a significant problem. On 3 December 2022, the tenth anniversary of Small Business Saturday, Business Secretary Grant Shapps announced a review into payment practices for small businesses.
Shapps said, “This review will allow us to build on the success we have had so far in curbing late payment… While we crack on with this work, I also want to remind big businesses of their duty to ensure their smaller suppliers are paid promptly.”
The Minister’s timely reminder to large corporates reflects the drip-effect that touches the entire supply chain when companies hold on to cash and delay payments, particularly affecting small businesses. While the Business Secretary’s review should lead to positive change for SMEs in the future, many business owners are struggling now. One potential solution for companies that are suffering from the effects of late payments is invoice discounting which can help to create a steady cashflow.
What is invoice discounting and how can it help my business?
Invoice discounting is a type of lending. A business can sell unpaid invoices to a lender and receive a cash advance in return. The lender will keep back a percentage as a form of security. Once the invoice is paid, the lender will transfer the remainder of the money, less its fee.
Invoice discounting can increase your cashflow fast, which is extremely helpful when an expected amount hasn’t been received and you have your own wages or bills to pay. For a small fee, invoice discounting takes the stress and struggle away from running your small business.
Won’t using invoice discounting tell my clients I’m struggling?
Invoice discounting has become a far more flexible and tailored type of lending than it used to be, and is now confidential and discreet. This allows you to reap the benefits of invoice discounting while never revealing to a client that you’re using business finance.
How flexible is invoice discounting?
One key benefit of invoice discounting is its flexibility. When using this type of finance, you are effectively taking out a short-term loan using an invoice as a form of security. This means you have access to lending without having to provide assets or getting stuck in a long-term repayment plan.
With invoice discounting, lending can grow with your business. Your funding will increase with your turnover, which means you don’t need to keep re-negotiating terms. This not only limits the amount of headspace needed to think about loans and financing your business, but also means your business can grow at a faster rate.
Business owners may choose to use invoice discounting on an invoice by invoice case. Choosing this approach on an ad hoc basis by selecting which invoices you wish to sell to a lender gives you complete control. If most payments are on time, but you’re expecting one large sum to come in late, using invoice discounting can give peace-of-mind that your cashflow won’t be impacted. Alternatively, you might choose to use invoice discounting to improve cash levels in a month where tax is due or where costs are particularly high. The flexibility allows you to make use of these short-term cash injections without committing to long-term contracts.
How can my business get started with invoice discounting?
If you have been panicking about late payments or limited cashflow, invoice discounting is likely to help ease those worries. Working with an independent finance broker can help you to organise invoice discounting as your business needs it. Complete Commercial Finance works with a number of lenders, supporting you to find the right invoice discounting loan for your business.
Perhaps you’re still feeling unsettled and want to talk through your options. Our team can advise whether invoice discounting is the best approach for you at this time or whether another type of financial support might be beneficial.
