The role of invoice finance in managing cash flow for SMEs

Maintaining a steady cash flow is a common challenge faced by an SME, especially in industries where long payment terms are the norm. Invoice finance can help to solve this challenge by allowing businesses to unlock cash tied up in unpaid invoices and focus on growth. 

What is invoice finance?

Invoice finance allows businesses to access a significant percentage, often up to 90%, of the value of their outstanding invoices, almost immediately. Then once their customer pays the outstanding invoice, the remaining balance is released (minus a service fee).

There are two main types:

1. Invoice factoring – a finance provider manages the credit control and collects payments.
2. Invoice discounting – a business retains control of collections, and the process remains confidential.

Why SMEs use invoice finance

For SMEs, delayed payments can mean postponed projects, delayed supplier payments, or even missed payroll. Invoice finance smooths out these bumps, giving a business the cash they have earned, exactly when they need it.

Unlike traditional loans, invoice finance doesn’t require fixed assets as collateral. It grows alongside the company turnover, making it ideal for fast-growing businesses or those with seasonal peaks. 

Industries that benefit the most

Sectors like manufacturing, recruitment, logistics, engineering and construction often face payment terms of 30, 60 or 90 days. Invoice finance bridges this gap, allowing the reinvestment in operations without waiting for the final payment.

It’s also an excellent fit for project-based businesses, where up-front costs are high, and payment is only received upon completion. This has been proven recently with the support NGI have given to an IT company located in Witney who secured an invoice finance facility for £20K.

Supporting business growth

With a consistent cash flow, businesses can confidently invest in marketing, hire staff, fulfil onboarding needs and invest further in new contracts. A company can stay in full control, rather than having to rely on upfront payments.

One final point to note, invoice finance is more than a stopgap. It is a proactive way to fuel a business’s day-to-day operations and long-term goals.

For help with any aspect of invoice finance please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.