Business success is often identified in one way. Cash flow. How you manage your cash goes a long way in determining how successful your company will be. If you didn’t know it already, invoice factoring is one funding solution that can help maintain positive working capital.
Business can be a fast paced environment, where opportunities need to be snapped up before they are taken by the competition. However they can all too often be held back by a lack of cash flow, and by the cycle of invoices and 90 day payment terms.
The process of issuing invoices and raising statements and listening to endless phone calls that all say the same thing “we’re just waiting on an overdue contract being paid before we can pay you” can stifle a business.
Invoice purchasing is a beneficial alternative to obtaining quick invoice funding to advance your cash flow and meet your evolving business needs. This method of finance uses invoices as a way for businesses to unlock cash tied up invoices and therefore speeding up cash flow. This is achieved by listing invoices to a third party (investor) for purchasing, a majority of the funds (typically up to 85%) are then advanced to the business, (the borrower) the third party then receives a percentage of the invoice.
An influx of funding improves cash flow and working capital status, which ultimately encourages a breakthrough into a positive financial stance.
Achieving positive trends on your sustainable growth curvature
Unquestionably, every business owner strives to accomplish constant business growth and aims to avoid financial barriers that can threaten growth and company expansion.
The need to be smart about managing cash flow is currently more important than ever. Traditional finance providers have never been more reluctant to lend to SMEs, and at the same time, large corporates want to hold onto their cash for longer and are doing so by extending payment terms to their smaller suppliers.
This indicates that invoice purchasing can be a vital and effective tool to preserve cash flow management. Businesses should strengthen their cash reserves and set up credit facilities when times are good. By thinking ahead, they get more funding at cheaper rates than if they were to seek finance during more stringent times. Economic uncertainty and unexpected expenses are widespread and the perceptive, prudent businesses are the ones that gain advantageous opportunities when they can.
Moreover, businesses that fail to create the right strategic balance can suffer a financial downturn and get trapped in a poor credit situation.
Waiting for customers to pay can hinder your business operations and de-stabilise your competitive position.
In order to manage everything properly and avoid a business standstill, SME’s need to acquire necessary working capital for smooth and up to date business activity. Extensive research and studies have found that nearly 65% of all entrepreneurial ventures in the U.K, including both small and large scale initiatives fail to make an impact on their first year business operations due to ineffective cash flow management.
Invoice purchasing — the definitive lending solution for the foreseeable future?
The rise of alternative finance in the last few years is now a popular and trusted form of lending, however, awareness amongst business owners of these new funding options remains low. Peer-to-peer lending and invoice factoring companies are becoming the norm for SMEs to seek funding solutions due to the process of speed, transparency and flexibility.
Invoice factoring companies typically offer their invoice purchasing services to companies with an annual turnover of at least £50,000, although some will consider start-ups and smaller businesses. A business can typically borrow up to 85% of the value of their invoices. Several different types of providers offer factoring or invoice discounting facilities, including banks, financial institutions, independent providers and online newcomers such as Populous World, which auctions invoices to global investors. The auction process provides invoice sellers with a range of competitive offers and bids around the globe from individual investors.
The Populous World auction model appeals to a multitude of SME’s as it means they can select which customer invoices they would raise finance for, and would only incur fees when they need to use it. The platform offers flexibility where you can choose to discount the invoices based on your needs.
What Invoice Finance structure does Populous World offer?
If you are an invoice finance newcomer, it is important to know what is involved before Invoices can be sold on the Populous World platform individually. This presents a client with full control of their factoring facility, where they can subscribe to the service on a ‘pay-as-you-use’ basis. A client can choose to discount their entire trade receivables or appoint our services tailored to the needs of the business.
Credit ratings — what is involved?
There are many factors involved in providing a credit rating to your company, which will determine the quoted interest rates. Among the factors considered is the Altman Z-score where it takes into account a client’s past and current financial information.
Generally, the process involves the client’s most recent audited financial statements, or equivalent for companies that receive exemptions from financial statement audits and other documentations as necessary.
What are the requirements?
As with all financial services, certain criteria does need to be met in order to ensure that the factoring contract will be beneficial and sustainable. Populous World requires the following:
We require our clients that we work with to have credit insurance with us as the beneficiary.
Deed of debenture
A debenture is a written agreement between an invoice buyer and seller, which sets out the charges and details the terms and conditions.
When utilising Populous World’s services, your business would be entering into a deed of debenture with us, to securitise assets of your company. In the event that your business cannot meet the repayment terms, Populous World would legally be entitled to claim any funds owed to us.
A signed guarantee from the client over the balance of the outstanding invoice amount.
For more information or to speak to a member of our team, please leave your contact details at [email protected] and a funding specialist will contact you as soon as possible.