If you run a small business or are thinking of setting one up, money will always be at the forefront of your mind. Funding is essential to get off the ground initially, but it doesn’t stop there. You’ll need a continual stream of income to expand and grow.
One of the biggest business mistakes you can make is consolidating your position. The life of a small business never stops. It’s essential you grow, evolve and even diversify.
How is this possible? Do you borrow money from the bank? Or do you look for alternative finance solutions?
Asset based finance solutions
Asset based finance solutions such as invoice finance can help businesses manage their cashflow.
Asset based finance in layman’s terms means finance for small businesses that is based on the assets they already hold as part of their enterprise. The most common and popular in the UK is invoice finance.
A full order book looks great, but it doesn’t always mean you have cash in the bank. Once the invoice has been issued this is a debt that your client has agreed to pay you, however, payment is subject to standard business terms meaning you’ll receive it after 30 days at the earliest. In some instances this can be a lot longer. That’s not even considering problems your clients may be having in the current economy.
Invoice finance provides a solution.where you’ll receive an agreed percentage of the invoice almost instantly. Once your client pays you’ll receive the rest minus a small admin fee. The beauty of this is that it provides you with funds to develop your business and even expand, but you’re not borrowing anything. Any money provided is an asset you already have. Invoice finance just releases it to you earlier.
Factoring and invoice discounting
Invoice finance can be broken down into factoring and invoice discounting. With factoring you’ll hand over your sales ledger to the funder who’ll chase all outstanding invoices on your behalf. This leaves you with the flexibility to get on with the day to day running of your operation.
Invoice discounting on the other hand leaves you with the task of chasing your clients and maintaining your existing business relationship; As small businesses continue to struggle to secure funding from the bank, many are looking towards less-traditional forms of funding. Asset based finance is leading the way.