By Mark Halstead, Red Flag Alert
Even the most amazing small businesses can find themselves beset with cash flow concerns and the associated issues have a terrible tendency to snowball and get much worse before they can be overcome.
If you’re facing up to significant cash flow problems that are starting to look insurmountable then it’s important to be aware of all the assets you can leverage to raise cash. One set of assets that often go overlooked are invoices your company has issued to customers and clients.
Here’s how you can use your invoices to help ease your cash flow concerns:
1 – Invoice discounting – The process whereby a lender buys your invoice and provides you with a cash advance based on the amounts expected. An advantage of invoice discounting over other means of leveraging the value of your sales ledger is that your customers remain unaware that the process has taken place.
However, under the terms of an invoice discounting deal, your company is responsible for any necessary credit controls and debt collection processes involved. In addition, a new bank account has to be set up so that your lender receives the money relating any relevant invoices.
2 – Factoring – Unlike in the case of invoice discounting, a factoring agreement involves a lender taking control of the invoices they buy from you. Debt collection and credit control processes are outsourced, which is generally a positive for small businesses who don’t always have the resources to chase after payments they’re owed.
Factoring will tend to be more expensive on the part of the business selling their invoices than will invoice discounting but as a means of offsetting concerns about cash flow, it can still offer a financially sound fund-raising solution.
3 – Online invoice auctions – This option is becoming increasingly popular and prevalent, with online platforms serving to bring together companies keen to sell their invoices and businesses in a position to buy them at an agreed fixed cost.
Selling invoices under any circumstances might not seem like an ideal or an appealing prospect but as a solution to short-term or lingering cash flow problems it can provide a much-needed lifeline to small businesses in financial trouble.
Mark Halstead is from Red Flag Alert, part of the Begbies Traynor Group, and is now in his 10th year with the business. He’s worked at companies across the financial services industry and is a fellow of the Institute of Sales and Marketing.