There are countless ways to get your hands on money that is tied up somewhere. And we know how hard it can be to concentrate on the business when you’re in budgetary issues, especially with a tight budget to work with. That’s why we’ve put together this blog post about some of the best ways for businesses – like yours – to make use of our invoice finance service.
Invoice finance – the quick overview
Invoice finance services are a form of asset-based lending. The idea is that by lending against invoices you have on hand, you can gain access to more cash. Invoice finance allows you to release capital that’s tied up in unpaid invoices, which means your business can have the funding it needs to grow. This is also called invoice discounting.
This growing market is set to make a huge impact on the future of finance. In a recent study by Charteris, it was noted that the current market size for invoice finance was $75.5 billion in 2012, with the value expected to grow at a compound average growth rate of 18% over the next five years, reaching $200 billion by 2017. It also said that the number of direct lenders in this market will also rise from 34 in 2009 to 232 in 2017.
It is evident that the market for invoice finance is growing fast. But when should a business actually get involved?
When should you use invoice finance?
Should your small business get involved in invoice finance? If your business is short on cash flow, it’s time to start thinking about whether or not this form of financing could be useful for your business. While there are plenty of ways to raise funding, the fact is that not all of them are right for your business. If you’re looking for more ways to raise capital, check out our blog post about loans.
So how are invoice finance services different?
Where invoice finance services differ from other methods of raising capital is that they provide a way to release extra funds tied up in your annual accounts. This means you can use the money for another purpose than it’s set at creation, such as expanding your business. Another difference is that invoice finance isn’t usually an interest-bearing loan, so it’s not like taking out a bank loan.
What types of business can invoice finance be used for?
There are many different types of businesses that invoice finance services can be used for. Let’s go through some of the most popular.
Non-profit organisations: Non-profit organisations, such as schools and community centres, have a huge amount of invoices lying around at the end of each month – however much work they do, these invoices will only ever get paid once. Invoice finance is a great way to get around this problem and utilise your capital in a more useful way.
High-risk businesses: Some small businesses are considered ‘high risk’ by banks and other financial institutions. This can make it difficult for them to get loans from banks, or they may not want to offer you a loan in the first place. However, invoice finance services are happy to take on higher risk clients because the companies they work with can prove their value by showing that they’re able to pay back their loans. Invoice finance services are a much easier way for these companies to access the money they need.
Businesses that may have been at risk of insolvency prior to invoice financing: Invoice finance is often more suitable for businesses that have been in financial trouble and might be considered high risk by banks. The fact that the service is providing short-term loans, means it doesn’t take on long term loans, so it’s a great solution for these types of businesses.
Internet businesses: The online world is full of businesses who are on the lookout for capital to grow their trade. Invoice finance is a great way to get your online business moving – especially if you have limited experience in the industry you’re working in. It’s also good for small businesses who are just starting out as they’ll be able to start using any money they raise today.
Major corporations: Large corporations often need large amounts of capital to help them grow their trade and expand their operations. Invoice finance is an ideal way for them to gain access to the capital that they need, and it’s a great way for them to prove their worth.
Your key points:
So why should you get involved? What makes invoice finance unique? Let’s take a look at a few of the most compelling reasons.
Invoice finance can help your business grow: The ability to gain access to extra funds in your accounts is a huge opportunity for your business. This gives your business more options to grow and allows you to expand your business without having to take on more debt.
Invoice finance can help bring in new customers: The fact that invoice finance services work on the principle of converting a debt into a capital asset means that they don’t usually require you to provide any financial guarantees in the form of collateral. This can open large markets for potential customers, who won’t need to know anything about your industry or even be interested in what you’re doing.
Invoice finance services are a cheaper solution than bank loans: Because invoice finance services don’t require deposits or long-term loans, they’re a cheaper solution for small businesses than traditional loans. This can be a great help in the early stages of your business when you might not have all of the cash available that you need to make up for the costs of production and paying staff.
Invoice finance allows you to expand your business without taking on more debt: The fact that invoice finance providers only offer loans for a short period of time means that they don’t tie up any extra capital that you might be able to access later. This allows you to make up for the costs of production and wages, as well as any extra costs you can anticipate in the future.
Invoice finance is a great way to get your business started: The fact that invoice funding services work with high risk clients means they’re a good option for businesses that might not have the industry experience or financial stability to be able to prove their worth. This can be a great help in getting your business off the ground.
Invoice finance is a way to deal with cash flow problems: One of the biggest problems you might face as a small business owner is having too little cash available at the end of each month.