A healthy cash flow stream is the key to a well-oiled business, so if this slows down, or grinds to a halt, it could threaten the viability of your business. Cash flow is the cash that runs in and out of a business, also known as inflow and outflow. It can indicate the performance of a business at any point in time, as if the company has more liabilities than cash owed, this could mark the beginning of financial decline for your company unless the business is supported with additional finance.
Company cash flow is the lifeblood of a business, so what are your options if your business requires a cash flow boost? The commercial finance options available to your business may be aplenty, so it’s crucial to understand the whole range of options available, including the benefits and caveats.
Commercial Finance Options to increase company cash flow
The commercial finance option that you choose will depend on whether you wish to access funds to solely improve cash flow or buy an asset using commercial finance to preserve the existing cash in your business. There are a range of commercial finance options available to accelerate company cash flow, such as invoice finance, asset finance, a bridging loan, or a business loan.
What is invoice finance?
Invoice finance is a form of commercial finance that enables you to release cash tied up in invoices that are yet to be paid by customers. Once an invoice is issued, your funder will transfer a percentage of the funds to your company, and the remainder will be issued once the customer makes full payment. Invoice finance provides quick access to cash, and you can manage how much control you retain over the credit control process based on the type of invoice finance that you choose, such as:
Invoice Factoring is a type of invoice finance where you retain control of the credit control process.
Invoice Discounting is a type of invoice finance where the invoice finance company manages the credit control process, and therefore, has the control to collect payment directly from the customer.
If you wish to select a specific invoice or a client account to release funds from, selective invoice finance and spot factoring permit this.
Here are some of the benefits of invoice finance:
- Invoice finance cuts out the invoice payment window, so a 30-to-60-day wait can be reduced to anything between a few hours, to a few days.
- Immediate access to cash can provide your business with the means to keep on top of pressing payments.
- Invoice finance facilities are often scalable with growth, so if you require more funds as your business grows, your funding limit can be increased.
- You have the flexibility to choose whether to retain control over the credit control process or outsource this.
Steady cash flow can help a business maintain its financial position, so if you require a helping hand, seek advice from a commercial finance expert. In addition to invoice finance, other forms of finance can supplement the cash flow of a business, such as a business loan, asset finance or a bridging loan.
Business Loan – A traditional business loan allows you to borrow funds from a banking or finance provider on a fixed or variable interest basis and can vary between short and long term.
Bridging Loan – If there’s a cash flow gap between an existing loan arrangement due to come to an end, and a new one yet to come into effect, a bridging loan is a short-term loan that can bridge this gap.
Asset Finance – This is a form of finance designed to help facilitate the purchase of assets, such as equipment and machinery.
Business finance can alleviate cash flow pressures and revive the financial health of a business. If your business is in the middle of a cash flow crisis, it’s crucial to seek professional support early to protect creditor interests and avert the threat of company liquidation.
Jon Munnery is an insolvency and restructuring expert at UK Liquidators, UK’s leading company closure and restructuring specialists. Jon is a highly experienced licensed insolvency practitioner familiar with all aspects of the business rescue and liquidation process, a member of the Insolvency Practitioners Association MIPA and a Member of The Association of Business Recovery Professionals MABRP.
