Small and medium sized businesses in the UK are increasingly feeling the strain of late payments, particularly if they are owed more than 13% of their turnover.
This benchmark is used by advisers and accountants who are concerned about cash flow issues due to late settlement of invoices.
A healthy level of working capital is essential for the smooth running of most businesses, but late invoices can interfere with this.
Invoice finance offers a simple alternative to the traditional bank overdraft for ensuring that there is enough fluidity for a well-managed and growing business to keep going.
Overdrafts can be a risk because they can be withdrawn at a moment’s notice, as many SMEs have found to their cost when their bank has withdrawn facilities and forced them into administration.
How does it work?
Factoring or confidential invoice discounting means that an SME can receive up to 90% of their invoice value immediately. The balance will be cleared after the debt has been collected from the customer or late paying client.
This means that the lender becomes an extension of the customer’s accounts department, taking on the responsibility for the sales ledger.
Invoice finance can typically cost between 0.2% to 1.5% of the invoice value, making it an affordable way of releasing funds that otherwise might cause distinct cash flow problems due to late payment.
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