Improve cash flow: credit insurance, invoice finance & asset based lending
When customers cannot pay your invoices due to insolvency the effects on your business cash flow and the ability to pay your commitments can be far reaching. So not only should you monitor your own business' health but that of important customers as their failure may be a business risk for you.
And where’s there’s risk, there’s insurance companies and brokers. They can provide credit insurance which can be specific to industry sectors and even specific to transactions to mitigate the risk of non-payment by customers and their insolvency. A credit insurer can also provide information about prospective customers and may be able to provide access to cheaper business finance. All worth consideration when looking to improve cash flow.
Sometimes the timing between when cash comes in and it when cash goes out can cause business cash flow problems, especially where you extend credit to customers. Invoice finance and asset based lending are effective business cash flow tools to steady and improve cash flow.
Factoring - The ‘factor’ will assume all credit management and collections activity, in keeping with an agreed credit policy. The factor agrees to pay a percentage (80-85% is normal) of agreed debts as soon as the customer receives a copy of your invoice. The balance, minus charges, is paid when your customer pays. It’s sensible to have bad debt protection as the factor can reclaim their money should your customer not pay.
Invoice Discounting - Similar to factoring but the sales ledger operation and credit management activity remain with you and so the service remains unknown to your customers. Payments received are paid into a bank account but administered by the invoice discounter; after you are credited with the balance, minus charges. Again, it’s sensible to have bad debt protection as the factor can reclaim their money should your customer not pay.
Asset Based lending - Normally linked to Invoice Finance – where funding is provided, in addition to invoice finance, secured against assets: property, plant, machinery, stock, or even the brand name (good for mergers, acquisitions and restructuring).
As licensed insolvency practitioners, if you are worried about you business’ financial health please feel free to call us 0121 201 1720 for free advice.