Explaining receivables finance

Receivables finance enables a business to access cash immediately even though invoices remain unpaid. The unpaid invoice, also known as accounts receivable, is considered an asset and can be used to broker a deal for finance. A relationship is established with a company specialising in receivables finance (bank, factoring company or alternative lender), they take the security of the money owed through the invoice and arrange for cash to be released immediately for working capital purposes.

Businesses can experience difficultly with cash flow problems when they are waiting for customers to settle invoices, especially if they take up to 60, 90 and 120 days to make payment.

Establishing a receivables finance agreement provides a very efficient solution to managing cashflow especially when customers delay payment. A lender will take over the control of the outstanding invoice, once issued payment will be immediately made to the business and the lender will receive their payment once the end customer has settled their bill.

Some of the key benefits of receivable finance are:

• It is an efficient process which can be established within days
• Agreements can be fluid, as soon as one is completed another can begin
• Only the invoice is needed as an asset to get a boost in cash

A business should take advantage of receivables finance when:

• They face cash flow issues
• To navigate through seasonal highs and lows
• When operational changes are necessary
• For funding growth initiatives

Establishing a receivables finance agreement is a very simple process:

• Invoices are submitted to a factoring company
• The factoring company evaluates the end customer for risk
• Upon agreement the factoring company offers a percentage value of the invoice
• A business agrees the factoring fee and receives the cash
• The end customer makes payment which is collected directly by the factoring company
• Once all debt is settled the agreement is completed and the process can begin again

The most successful receivable finance agreements are when there are very clear lines of communication. Everybody involved in the process must be fully aligned.

If you have any questions or would like to find out more about receivables finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.