Since the global financial crisis began to bite in 2007, there has been a marked rise in SMEs seeking alternative funding sources. As traditional banks have become increasingly reluctant to lend, the gap remaining is increasingly being filled by so-called challenger banks. Unaffected by the legacy debts and bad PR of traditional banks, they have been able to offer SMEs new ways to inject capital into their businesses. With even traditional banks now talking of launching invoice finance divisions, coupled with the fact that ‘invoice finance’ was the most popular business finance search term on Google in 2013*, it is clear that this is becoming an increasingly popular and reputable finance model.
The growth in popularity of invoice finance isn’t just confined to small businesses facing challenging times. Increasingly, long-established businesses are also using this method. In fact, established companies have just as much, if not more, to gain from invoice finance, invoice discounting and invoice factoring. As invoice financiers link their lending to a company’s sales ledger, businesses with a steady flow of sales and invoices have much to gain, especially if they have clients who are slow to meet their payments. Instead of using invoice financing to save a business from troubled times, the facility can instead be used to bolster a period of growth – which in turn may attract more investment in the business. After an initial cash injection, a steady flow of increased capital can facilitate buying services in bulk, thereby cutting costs in the long term. Outsourcing your sales ledger to an asset management company can also free up crucial team members and cut manpower costs.
The various models of invoice financing that are available can be extremely beneficial for established businesses. Companies that have strong links with their clients can keep control of their sales ledger by choosing invoice discounting instead of invoice factoring. Businesses that regularly take on new customers can make use of the mutually beneficial credit checks that many invoice financiers will carry out on new clients.
With big banks failing to meet the needs of their customers, it is little wonder that SMEs and many larger companies are increasingly turning to a quicker and more convenient way to access capital. For many established businesses, the quick initial cash injection, along with the confidentiality and security that invoice financing provide, make invoice finance, invoice discounting & invoice factoring the only viable option – if they want to grow and prosper in this economic climate.