Make your outstanding receivables work for you!

In today’s fast-paced, highly competitive business world, it gets tough for SMEs to keep up with the speed of the ever-changing digital world, and to stay relevant in their industry, they need to be on a level playing field with competitors.

SMEs struggle to trade with late-paying customers which effectively dents the sustainability of daily operating expenses such as staff, overheads and inventory. VAT would also become due on income which had not yet been received. Business owners, as a result, suffer from banks not wanting to provide finance to bridge the cash flow gaps.

The History of Late Payments

It started off with one firm implementing an extended payment term between itself and their suppliers, to around 120 days. The supplier would deliver their goods or service to the firm and have to wait lengthy periods for their invoices to be paid. This pattern then became a benchmark for all companies to follow in line and adopt the same approach.

In the past, extended payment terms between a business and its customers was a sign that the business was experiencing serious cash flow problems, but these days it is seen as quite the norm to expect a payment cycle of up to four months. Robust companies suggest that they impose these payment terms on suppliers as a form of business strategy. A large number of the world’s largest manufacturing, distributor, food and packaged goods companies are asking their suppliers to give them as much as four months to pay their bills — even though they typically require payment from their own customers in 30 days.

Maintaining a good relationship with customers using Invoice Factoring

As a result of extended payment terms, SMEs may seek external funding to bridge their cash flow crunches. Invoice factoring is a source that has increasingly become widespread and popular amongst business owners because of the speed in which cash can be advanced against invoices and the less restrictive barriers that come with traditional bank loans.

Using an invoice factoring company will help entrepreneurs to sell their outstanding receivables. By way of an example, at Populous World, the factoring model consists of an auction-based platform where invoices are on sale for bid which allows businesses to receive the best competitive rates. The platform offers a financing method termed ‘invoice discounting’ in which a company can unlock up to 95 per cent of the value of their invoices. The company then collects the payment from customers and then pays it back to Populous World. It is that straight forward!

Although invoice factoring is an effective solution for businesses seeking to source finance, it does not just simply unlock funds and leave the SMEs behind.
Factoring companies such as Populous World helps businesses to scale, grow and maintain a healthy working relationship with their customers.

Does Invoice Factoring make sense for your business?

Invoice factoring is now widely used across markets, niches, and industries. Almost each and every industry today is benefiting from alternative funding to advance cash and boost cash flow and working capital to improve business operations and optimise growth.

By way of an example, let’s say you have a manufacturing-based business and you have multiple vendors to whom you have already delivered products or services to. The invoices that are generated have a payment term of 60 days until they get paid. But instead of waiting for 60 long days or possibly more for the locked funds to credit into your bank account, you can partner with an invoice factoring provider to advance instant funding against your outstanding invoices. The cash acquired from them can then be used for maintaining an effective cash flow life cycle.

The best part about Invoice Factoring?

Invoice factoring services for small businesses consists of rewarding benefits, which helps entrepreneurs to acquire fundamental working capital for optimal company growth and expansion, especially for businesses that require steady cash flow.

Some of the inherent benefits of invoice factoring include:

  • quick and simple access to cash,
  • reducing the risk of late payments and bad debts,
  • affordable factoring fees
  • flexible financing terms
  • most SMEs choose to sell their invoices on a regular basis, thereby improving cash flow, providing predictability, and strengthening their position to take on new opportunities.

How businesses can achieve sustainability despite extended payment terms with customers

Businesses of all sizes, have a limited pool of capital to work with, both monetary and personnel. A shortfall in working capital reduces efficiency and disproportions sustainability. Releasing cash flow from invoice factoring, also referred to as ‘accounts receivable finance’, will boost management time, allow for more resources, accumulate operational capacity, minimise management distractions and reduce shortage issues such as equipment and staff.

If your sales are growing and you need to know that your cash flow will keep pace, then invoice factoring may be the best fit for your business, particularly if you are looking to secure funding that grows in line with your sales or you have money tied up in the sales ledger that could be working harder for you. With invoice financing, cash can be released from invoices on the next working day, providing you with crucial funds needed to manage and sustain operating activities and to keep up with demanding inventory orders.
A shortage in working capital will hinder the configuration of a business’s workflow, but with extensive cash at hand, entrepreneurs have the ability to free up time to focus on core business activities and be prepared for demanding inventory requests.

Which Factoring Company is right for your business?

The factoring marketplace is an ever-evolving space and with a variety of invoice factoring companies to choose from, your business will need to choose which company is best suited to match its needs.

The Populous World platform offers a bespoke factoring facility where you can pick and choose which invoices you wish to factor. The platform provides the means for global investors (invoice buyers) to participate in an auction of invoices, the advantage of this being cross border payments can be taken within seconds, allowing the invoice sellers to receive cash instantly.

SMEs that sell their invoices with Populous World are transitioned through a bespoke service, where the onboarding process is carried out swiftly and on-hand support is offered throughout the duration of the short-term funding required on a flexible basis.

This effective funding formula provides substantial short-term funding solutions to increase business activities, enabling businesses to receive working capital upfront and at a discount rate.

Growth and sustainability are the ultimate keys to business survival and accounts receivable finance is the way for a forward -thinking business to achieve this.

Lou Chan – Head of Marketing, Populous World.