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Invoice Financing: Addressing Today’s Issues

Invoice Financing: Addressing Today’s Issues

Last year, many small businesses were applauding when the Chartered Institute of Credit Management announced the launch of the Prompt Payment Code. The code was designed to address a very common issue among small businesses – late payments from clients that significantly affected cash flow and available capital, limiting the number of growth and development opportunities a business was able to explore. The aim was to ensure that all small businesses were paid in full within 60 days of issuing an invoice, with a view to reduce this to 30 days in the future. So has the Prompt Payment Code worked?

Unfortunately, while the Prompt Payment Code advisory board claims that the system has ‘already proven its effectiveness’, many businesses would disagree. A recent study has actually found that, despite the scheme, 12 percent of businesses are having to wait more than 90 days for an invoice to be paid, and 3 percent are not being paid for 120 days on average. The board claim that it’s essential that the code is ‘given greater visibility, publicity and support’ to boost success rates, but, at the end of the day, we must accept that late payments are still going to happen, regardless of these guidelines.

That’s why invoice financing, or invoice trading, is fast becoming one of the most popular forms of alternative financing for small businesses. Invoice financing directly addresses the issue of late payments, and acknowledges the huge effect that this could have on the future of SMEs. Invoice financing, it seems, has come at a time when we need it most, and it is fully expected that this form of alternative finance will become the ‘next big thing’, overshadowing traditional high street bank loans. Here are just a few advantages of invoice financing that small businesses may wish to consider:

  • Unlike a traditional loan, financing is typically available very quickly with invoice financing – often within just a few hours. Today, this is a major advantage, enabling businesses to accept growth and development opportunities as they arise, without missing out due to cash flow issues.
  • Despite a recent boost in the economy, it is still relatively challenging for small businesses to be approved for business loans from high street banks. Invoice financing typically boasts higher approval rates, simply because there is a much lower risk involved in this sort of lending.
  • A common concern for small businesses when taking out business loans is that, due to unforseen circumstances, they may not be in a position to make repayments. With invoice financing, this isn’t a concern, as any funds loaned will be funds that are ultimately owed to you.
  • If your business is struggling with late payments, and with the effects of disrupted cash flow, it may be worth exploring invoice financing in more detail. You can find out more about invoice financing – including suppliers, arrangement fees, and terms – at compareyourbusinesscosts.com.