How many of us ordinary folk know our way around the thorny subject of business finance – so many more options these days beyond the old fashioned method of applying to the high street bank, cap in hand with the business plan tucked into our smartest suit and best titfer.
There are the popular invoice financing schemes which involves a loan lender uses unpaid invoices as collateral for funding which gives quick access to funds, as a percentage of the value of those invoices. In other words they applicatnt’s buyers have their debt hawked out in a similar fashion to a pawn shop operation. The amount of cash a provider will ‘advance’ against the invoice value is based on its own criteria. Generally there will be consideration of the strength and prosperity of the business and its debtor book – that all essential record of debts owed to the business by its customer base. It is less short term focused.
The invoices assigned to generate this pot of cash of available funding will roll over as more invoices are raised and paid which in it’s way creates a dynamic working capital fund, tracking the growth of the original business. The more sales means more invoices will be raised and assigned, thus creating more funding to be unlocked. This is considered a good and efficient use of otherwise untapped asset on the firm’s balance sheet. Anything that improves daily cash-flow is welcomed and invoice finance appears to offer the perfect scenario by easing that pressure cooker effect that late payment of invoices always causes.
