With the festive season approaching rapidly, many businesses will face a challenge of managing cash flow whilst also meeting the increased demand in products and services. Christmas is a crucial time for retailers, wholesalers and suppliers but with this can bring pressure to stock up on inventory which in turn can stretch financial resources. One effective funding solution to help during this period is supplier invoice finance.
Supplier invoice finance (also knowns as supplier finance or factoring) allows a business to pay suppliers promptly without immediately draining cash reserves. An agreement is fixed with a lender who will arrange for payment of suppliers to be immediate and the business making repayment to the lender over a flexible term. The result is the supplier is paid when required and the business can maintain strong cash reserves to help fulfil all operational expenses.
Why is supplier invoice important for the Christmas period?
In preparation for the Christmas period a business will need to ensure they have stocked up heavily to meet consumer demand. This will require the placement of large orders with suppliers which can have a negative impact on cash flow. This is where supplier invoice can be so useful.
- Inventory purchases – supplier invoice can help to secure stock that is needed without depleting cash reserves. Spreading the cost of inventory means a business can focus on fulfilling orders and scaling up without worrying about cash shortages.
- Strengthen supplier relationships – busy periods can increase pressure on all, which could put a strain on business relationships. Being able to make timely payments will ensure good relationships are maintained. This will keep all the supply chain running smoothly.
- Flexible payments – using supplier invoice finance will help with negotiating favourable payment terms. During the Christmas period sales can fluctuate, and a business might need time to generate additional revenue to cover suppliers’ costs.
- Post Christmas expenses – once the festive season has past there may be a lull in sales, but supplier payments, payroll and other operation expenses will still need to be covered. Supplier invoice finance will give some breathing space, expenses can be managed over a longer period without immediate pressure.
How does supplier invoice finance work?
Step 1 – orders can be placed with suppliers and on receipt of invoices these are passed on directly to the invoice finance provider.
Step 2 – the invoice finance provider will pay the supplier, typically at a discounted rate. This ensures the supplier is promptly paid, keeping the supply chain intact and avoiding any delays or disruptions.
Step 3 – Repayment to the invoice finance lender is completed over an agreed period which has been tailored to the specific needs of the business.
Using supplier invoice finance can help to access larger stock levels, increase working capital and avoid debt or the use of overdrafts. Tips when looking at arranging this facility is to plan early, monitor inventory and sales and finally work with reliable suppliers.
In conclusion, the forthcoming Christmas season can be challenging but also can bring great business opportunities. As demand increases there will be the need to place larger than usual stock orders. Supplier invoice finance will offer a practical solution of paying suppliers on time without impacting cash reserves. With flexible repayment terms and improved cash flow, invoice finance will allow a business to prepare for the festive period and continue to maintain strong supplier relationships.
If you have any questions or would like to know more about supplier invoice finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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