Many businesses are securing cash flow through asset based forms of lending, such as invoice finance. But what exactly does that mean?
Here we bring you a guide to the most important forms of asset based finance. Whether invoice finance or trade finance from Bibby Financial Services, we’ll help you find your perfect solution.
Invoice finance involves securing funding against your existing invoices. It’s a structured payment system that evolves as your business grows. As it is based against your already existing assets, there’s no requirement for debt, as is the case with a bank loan or bank overdraft.
As soon as you issue an invoice, the funder will provide you with up to 90% of this within 24 hours. The rest, minus a small admin fee, will be paid once your client pays. It can be broken down into factoring and invoice discounting. So you bill, and even if your customer takes a week or two to pay, you are paid immediately for just a small fee.
Small businesses opting for factoring will place the control of their sales ledger in the hands of the funder who will chase payment directly from clients. In most instances this service will also involve bad debt protection and credit checks on existing and prospective clients.
The control of the sales ledger will remain with the business, as will the task of chasing payment. This represents a cheaper service and as such is a popular option with many SMEs.
For UK companies who purchase and onward sell finished goods, trade finance offers a structured funding service. Businesses operating in this sector not only need have to wait for their clients to pay, they also need to pay their suppliers upfront. Trade finance provides them with the funds to do this, as well as the cash flow for the day to day operation of the business.
This is a form of factoring specifically for businesses looking to break into new territories. As well as offering the same services as a standard factoring agreement, additional benefits such as a multi-lingual credit-control team to chase clients in a variety of countries and currency facilities to combat fluctuating currency rates.