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How invoice financing can help struggling businesses

Category: Features — Paul Morgan on July 23, 2013

When a business is struggling, it can become extremely difficult to arrange finance. However, it isn’t impossible. Whilst it is true that most traditional financial institutions will avoid lending to a struggling business, invoice financing firms have a different approach.

They are able to do so because the loans they make are secured against a company’s invoices. Therefore, the creditworthiness of a firm’s customers is more important than the financial stability of the business itself.

When should a struggling business consider borrowing money?

Borrowing money could be the last thing on the mind of the average owner of a struggling business. However, there are a number of situations in which borrowing money using short term loans actually makes sense. Here are just a few examples:

To improve cash flow

Most firms experience periods of time when they are short of cash for whatever reason. If a company doesn’t have enough money to pay the month’s wages because business is slack, it can borrow the money it needs using invoice factoring. As business picks up, it can then stop borrowing against its invoices and begin to pay wages out of its current account once again.

Taking advantage of business opportunities

A company that is tight on cash can find it nearly impossible to bid for and secure new work. It may be able to convince potential customers that it has the ability to produce the goods but may not have enough cash to buy the raw materials it needs. By borrowing against their invoices, firms can secure the money they want, sign the lucrative contract and buy the raw materials they need to begin production.

Timely cash injections help supplier relations

When cash is short, companies can find themselves unable to pay their suppliers. Naturally, this is not good for B2B relationships. A firm that pays on time will often be treated with more respect than one which fails to meet deadlines. Suppliers will be more generous and flexible with those companies which pay their bills on time. For any business, this is potentially very beneficial.

Maintaining customer relationships

Cash-strapped firms often struggle to meet the commitments they have made to their customers. They can find themselves having to let members of staff go because they cannot pay their wages. This can leave the rest of the staff too stretched to provide the necessary level of customer care. Using invoice financing, firms can easily borrow the cash they need to keep all of their customers happy and avoid getting a bad reputation.

Helping with credit control

Another benefit of invoice financing is that the factoring agent will usually be responsible for the collection of the cash owed. If a customer does not pay on time, they will chase them up to get the invoice paid. This may only seem like a minor convenience but the last thing a struggling business owner needs is to have to chase up clients and customers for outstanding bills.
The nature of invoice financing means it can work perfectly for businesses in all kinds of situations. It certainly pays to speak to a professional about the routes which are available, though.

'Disclaimer: The information contained in these articles is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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