Invoice financing (also known as debtor finance) is a great way for B2B businesses to manage late payments. Could it solve your cash flow problems once and for all? Let’s explore.
What is invoice finance?
Late payments from clients can have a ripple effect, straining cash flow and sometimes even jeopardising your relationships with suppliers. But there is a solution. Invoice finance is designed to bridge gaps between incoming and outgoing payments, cushioning the impact of late payments on your business.
Invoice finance is particularly useful for manufacturing and B2B businesses who deal with both clients and suppliers. With it, you can protect your business from bottlenecks, pay bills on time and avoid the stress of chasing up late payments.
How does invoice finance work?
Invoice finance allows you to leverage unpaid invoices and free up cash flow.
How? Your lender will pay you a percentage (usually 80%) of the amount owing on each unpaid invoice. This means you can pay suppliers on time without disrupting cash flow, while your lender takes on the debt. When you’ve received your invoices you can pay your lender back over a longer, more favourable term.
There are two types of invoice financing—invoice factoring and invoice discounting. The key difference between them is in the level of control your lender has over your sales ledger.
We can help you decide on the best type of invoice financing for your needs—chat to a lending expert today for a personalised overview.
Benefits of invoice finance
Invoice finance helps to keep things moving within your business and beyond. Here’s a snapshot of the key benefits:
- Bridge gaps between incoming and outgoing payments to keep your suppliers happy
- Maintain healthy cash flow and manage invoices more easily
- Pay your lender back over a longer period of time and more favourable terms
- Avoid bottlenecks and the stress of chasing up late payments
- Avoid late fees and other penalties from suppliers
Tips for managing late payments from clients
Offer a discount
One way to encourage late-paying clients to get on top of things is to offer a cash incentive. Slash a percentage off your clients’ total bill to say “thanks” for paying early.
Get your invoices out asap
By giving clients ample time to pay their bills, you’re setting them up for success. Being organised won’t necessarily guarantee being paid on time, but it will pave the way for clients to follow suit.
Set up an automated reminder
A few days before invoices are due, send out an email or text reminding clients to pay you. This keeps your business front of mind and helps to minimise the occasional slip (we’re all guilty from time to time).
Find out what’s going wrong
If a client consistently pays late, there could be a reason. A hold up on their end? Problems with your product? Encourage your client to be open and honest about what’s holding them up so you can help them find a solution, or at least do your best to help! For example, setting up a regular payment schedule could resolve issues around meeting deadlines.
Take back control
Things happen. You can’t control late payments from clients but you can apply for invoice finance to bridge gaps in cash flow. No more chasing up late payments, stressing over looming deadlines or relying on clients to keep things moving.
Henry is a Senior Product Specialist specialising in working capital solutions. He loves helping entrepreneurs achieve their growth goals and getting to know their businesses in-depth, in order to find the most fitting product for their needs.