Securing invoice finance can be a smart way for businesses to improve cash flow, especially when waiting for customer payments. Invoice financing allows businesses to borrow money against unpaid invoices, giving them immediate access to funds.
There are several top tips for successfully securing invoice finance:
Be organised – a lender will want to see clear and accurate documentation so that they can quickly assess individual circumstances. Before applying for invoice finance, it is important to make sure all invoices are complete, correctly issued and free from errors. Any inaccuracies can cause delays or a withdrawal of the facility.
Understand your creditworthiness – although invoice financing is largely based on a customers’ creditworthiness, a lender will still assess the business’s financial stability. Having a solid business credit score and sound financial history will make it easier to secure invoice finance. Items such as financial statements, tax returns, and business history will be required.
Understand the customers creditworthiness – a lender will evaluate the creditworthiness of a customer. Ultimately, they are the ones responsible for paying the invoices and a focus should be on working with clients who have a history of timely payments. If a customer has a poor credit history or a pattern of late payments, their invoices may not be eligible for financing or could come with less favourable terms.
Be selective when choosing an invoice finance provider – there are many companies who can offer this type of funding. It is important to research all the options and choose the ones who offers the best terms and conditions. Complete extensive research and choose a lender with a strong track record, transparent charging structure and excellent reputation. Ultimately seek the advice of an independent finance team who can complete all the extensive research and then match you to the right funder.
Choose the right invoice finance facility – there is a choice of either invoice factoring or invoice discounting. Factoring is the selling of invoices directly to the lender who then takes responsibility for collecting payment from the end customer. Discounting means the business retains full control of the end customer, collecting the debt when it is due. The lender facilitates the transfer of funds as soon as the invoice is raised and receives renumeration when the customer pays the invoice.
Ensure payment terms are consistent – potential lenders will want to see a business has been consistent with their payment terms. If a flexible payment solution ranging from 30 to 90 days has been deployed, then this can complicate the financing process. By standardising terms, it demonstrates a predictable cash flow and is far more attractive to a lender.
Understand fees and rates – as with any business finance solutions there will be fees and interest charges. This will depend on the individual circumstances, end customer creditworthiness and the amount being financed. It will be important to understand the upfront fees, interest rates and service charges as a business can then evaluate if the invoice finance provision is right for them.
Maintain strong customer relationships – building good relationship with customers can have a positive impact when securing invoice finance. Lenders will reach out to clients for payment and credit assessments, so the experience needs to be professional and straightforward. Keeping good communications and fostering strong relationships is a must.
Keep a healthy credit score – although invoice financing is tied to customer payments, a lender will conduct a thorough background check on the business sourcing the facility. They will check legal documentation, licences and financial records. Being able to demonstrate a healthy credit score will be important, if for any reason the credit score is low then an application for funding should be delayed until it can be improved. As part of this strategy a business should also keep accurate debtor and creditor reports.
Deploy a broader financial strategy – invoice finance is a very useful resource to manage cash flow, but it will always be advantageous to make use of other financial solutions. By incorporating it as part of a larger plan for broadly managing finances a business can better control expenses and secure additional credit lines. Being strategic about when to use invoice finance, ensures that it strengthens the business’ financial health.
Securing invoice finance can provide valuable working capital for a business. Keeping accurate financial records, maintaining good customer relationships and choosing the right business finance partner will help to maintain steady growth and meet business demands.
The NGI team are on hand to support business with their invoice finance needs. In recent weeks we have supported a construction business with the provision for invoice finance to support them with their £5million renovation project.
If you are looking for help with invoice finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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