Healthy cash flow is crucial to business success. However, considering that in 2017, 27% of invoices were paid late; it is not easy for UK businesses to manage their cash flow for greater business growth. For SMEs in particular, late invoice payments can cause severe repercussions throughout the company. So, what can small businesses do to protect themselves from the ‘nightmare’ clients that always pay late and the struggles of cash flow management? The answer for many may lie in invoice financing.
The Cash Flow Problem
Poor cash flow can lead to a downward spiral of problems for businesses. Tighter cash flow makes it much harder to pay bills, meaning borrowing and debt increases, it becomes hard to acquire and retain staff. It also makes it virtually impossible to obtain inventory and ultimately grow the business.
Many cash flow problems stem from a vast difference in invoice payment terms as well as the reported 27% of invoices that are paid late. Research has shown that the average time to pay an invoice is 38.97 days. However, around a third are paid between 31 and 60 days and 15% take longer than 60 days.
Typically small businesses will be running on payment schedules of 30 days, while the larger enterprises may operate on invoice terms with payments at 120 days. The corporations with extended payment terms then wreak havoc in the supply chain. Many large businesses are essentially borrowing from their SME suppliers.
A well-known example of this is with Carillion. Their clients had to pay within 30 days, yet their suppliers had payment terms of 120 days. Ultimately, their poor cashflow management led to their liquidation leading them to owe a staggering £2 billion.
How To Manage Cash Flow
For SMEs, to grow and win lucrative contracts, it is often necessary to work with companies that have longer payment terms. However, this does not mean that your enterprise should suffer through unpaid invoices and extended payment terms.
Invoice financing is an ideal solution that provides businesses will complete control over their cash flow, while freeing up cash from invoices in just a matter of days. GapCap can remove the time lag between raising and receiving payment for an invoice. We don’t manage your entire sales ledger. Instead, you select the invoices you want to release cash from.
Benefits Of Invoice Financing
- Complete flexibility– Depending on business needs you can request one or a few invoices at a time.
- No agreements– We don’t take your whole sales ledger. You decide what invoices you want us to pay.
- Simpler– Transactionally, selective invoice financing is a much easier solution than discounting and
- Control – The financing and cash flow management are in your hands.
How You Can Boost Profitability With Invoice Financing
Poor cash flow leads to stress, staff loss, reputation problems, credit rating difficulties, insolvency and bankruptcy. However, taking control of your cash flow with selective invoice finance can boost profits in a variety of ways.
- No Need For Long-Term Debt
A GapCap facility means no long-term payments or charges. You can settle your books instantly. Without fixed term payments, you can substantially improve your cash flow to invest into growth.
- Ability For Lucrative Projects
With invoice financing, your business is in a much better position to accept lucrative projects and more significant contracts without worrying about the stretch of the company with long payment terms. This can take away the stress of extended terms and allow you to reach out to more businesses so you can enjoy further growth and profitability.
- Forward Planning
Knowing how you can free up cash flow means you not only stay in control of your books but have a much better idea of the future financial position of your company. You can make knowledge-backed decisions on where to grow and expand as well as when the opportune moments will be to capitalise on growth with healthy cash flow available.
- Streamlined Processing
With GapCap, you can complete invoice applications in seconds with fast approval so that money can be in your account within days. The efficient process allows you to focus on the more criticalaspects of your business such as driving your growth and profitability. What’s more, this fast-track approach provides streamlined book keeping too, reducing administrative time and increasing your value-adding time.