Types Of Cashflow Finance


There are many reasons why a business might seek cashflow finance.

Contrary to some common mythology, seeking this sort of financial facility does not necessarily suggest anything about the viability of the company concerned. It is not about companies in a financial crisis or those trying to hold off the inevitable for as long as possible.

Cashflow finance is a standard business financial tool used by large numbers of extremely successful organisations from time to time. In fact, your ability to tap into and deploy cashflow finance may be a critical success factor for the future.

Why you might need it

There are many reasons why your company might experience a short-term cash funding challenge:

  • perhaps one of your major customers has failed to pay your invoices on time, leaving you with a cashflow shortfall;
  • you may have invested heavily in business expansion but your plans are running a little behind schedule, meaning you are not yet able to recuperate the planned cash benefits as a return on investment;
  • perhaps you have been hit with an entirely unexpected and significant cost which might not be a problem in the medium to long-term but which in the immediate future, you may struggle to find the cash to pay; etc.

These are all typical day-to-day business challenges and cashflow finance may be one part of the story in assisting to resolve them.

Your options

Factoring

If you’re struggling to obtain payment from a customer or customers, this option allows you to essentially sell your invoices to an intermediary called a “factor”. They will then offer you an immediate payment of a percentage of your outstanding invoices, which might typically be up 85%.

The factor you will then take on responsibility for the recovery of the invoices’ balances with your clients. Once they have received payment, they will forward the balances on to you.

The factor will charge a fee or commission for providing this service and its associated cashflow assistance.

Invoice discounting

In some respects, this is a variation on factoring but here you will be borrowing against your outstanding and unpaid invoices.

You will continue to manage your own credit control with your customers. This means that the normal overheads associated with credit control will remain with you.

Credit control

As many business people discover, credit control can be time-consuming and occasionally frustrating.

Perhaps you do not have the time or personnel required to deliver the required credit control services your organisation needs and if that is inhibiting your normal cashflow, you may be able to pass over responsibility for the entire operation to a skilled third party organisation.

Again, costs will inevitably be incurred though as with all such options, they may be recoverable via your standard pricing models.

Trade insurance

Trade insurance is also occasionally referred to as “trade credit insurance”.

There are various options available under this heading.

Some cover of this nature will assist with your cashflow finance by making payments in situations where your customers have become bankrupt or otherwise insolvent. A variation on that theme involves customers who, for various reasons, may still be active and trading but who are simply not paying your invoices or even explaining their failure to do so.

In other situations, it may be possible to take out cover against customers who are extremely late in paying their bills or where you have been forced to take legal action in order to recover sums due.

Managing cashflow

For many business owners, CEOs, COOs, CFOs and accountants, managing cashflow is one of the major business challenges faced by their enterprise.

Essentially, whether you are a large or small company, if you are paying out money faster than it is coming in then sooner or later problems will arise – unless you have appropriate funding assistance.

Cashflow finance in its various forms might be the solution. Why not get in touch today to see how we can help?