Here Dr P Singh from Cash for Invoices shares research and answers to why they say your invoices don’t get paid.
Several reasons have been revealed for invoices not being paid to SMES, but single invoice finance from Cash for Invoices Limited can provide essential cash, says Dr P Singh.
Research cited in CityAM showed an alarming state of affairs in recovering money owed to small businesses by debtors.
The research revealed several reasons cited by small businesses as to why they wrote off billions of pounds collectively owed by debtors. Top of the list was insolvency of the debtor, followed by doubt that the debtor had funds to pay.
Equal 3, 4, and 5th place reasons cited were lack of time to chase, risk of damaging the relationship, and no funds to pursue the debtor.
These are all concerning reasons for SMEs writing off collectively £6 billion of debts in 2015/16 according to Direct Line. The average write off was over £31,000 and a staggering 10% of companies each wrote off over £100,000 owed by bad debtors.
These alarming losses might have meant the company had a shortage of cash flow needed for running its business, such as: paying overheads, managing working capital, growth, or research and development. The shortages might have been made up by urgent loans but that solution will have led to further costs (of interest) and reduced bank funding capacity.
Cash for Invoices Limited in London buys single invoices for cash. It will pay up to 97.5% of the invoice amount less a 10% retention that is handed to the company provided its debtor pays the invoice. The fee is therefore just £2.50 per £100 of invoice for a 30-day invoice. A small price to pay to get cash into the business. If the debtor were to default then Cash for Invoices Limited will not sell the invoice back.
Unlike many bank and other factoring companies, a multitude of fees are not charged to benefit from Cash for Invoices Limited single invoice service. No arrangement fee for example and no service charges, exit charges. Nor are there annual renewal charges because no facility is set up with the selling company. There is no commitment for the small business to sell any invoices to Cash for Invoices Limited.
A significant advantage of the single invoice finance service from Cash for Invoices Limited is that it requires no security off the selling company: no debenture, no personal guarantees, or other charges. That is a substantial improvement over many bank and other factoring companies’ factoring facilities.
If a small business answers yes to either of the following questions, then it would benefit from Cash for Invoices Limited’s single invoice finance service:
1 Do you occasionally need more time to pay your supplier invoices?
2 Would you like invoices you send to customers to be paid sooner?
Cash for Invoices Limited’s single invoice finance service outperforms conventional factoring because:
a) it does not require security from the selling business (such as a debenture or guarantee)
b) just one invoice can be sold
c) there is no commitment to sell any invoices to Cash for Invoices Limited, and certainly not the business’s whole sales ledger
d) very small value invoices (from £250) may be sold, ideal for micro-businesses
e) one fee only is charged, plus a refundable retention. Unlike similar service providers, Cash for Invoices Limited does not charge: arrangement, servicing, renewal, or exit fees. The current fee is just 2.5% of the invoice. The refundable retention is 10% of the invoice. This is paid to the business if its debtor pays Cash for Invoices Limited in full and on time.
f) For supplier invoices, the payment date of the supplier’s invoice bought by Cash for Invoices might be extended, giving the business up to 60 days extra time to pay Cash for Invoices Limited.
To get a free no-obligation quote on how much cash you could receive from selling just one invoice, contact Cash for Invoices Limited or call 0208 987 0429
Being in business allows you to push the boundaries of what you think can be achieved. But can you honestly say you sell outside of your comfort zone?
What could happen if you did?
Think it through….if your current marketing strategy allows you to create your current supply of customers what could happen if you pushed yourself outside of your comfort zone?
(Here’s a clue, it will definitely involve more time creating invoices and less time chatting on social media !)
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Invoice finance (IF) is not considered a credible source of finance among some business owners because of its relatively high cost and onerous terms. Is this perception justified? Dr P Singh of Cash for Invoices Limited investigates.
What is invoice finance? It is the sale of a company’s sales ledger for cash providing an ongoing source of cash as invoices are issued to customers by the company. The company might retain the collection of cash or transfer this and the associated credit risk, to the funder.
Some conventional IF facilities can impose numerous types of fees and charges, and require security and a commitment from the company to sell its entire sales ledger to the finance company. Some companies offer a refreshing financial alternative, offering to buy just a single invoice and charging as few as just one fee and generally offering a more flexible funding alternative.
What is single invoice finance? As its name suggests, it is the purchase of one invoice for cash from a company. The company does not need to sell any further invoices so single invoice finance can be used by companies to raise cash as they need it. Also, they might not need to provide security such as a debenture or a personal guarantee. Single or multiple IF are effective tools for cash management because they liquidate illiquid assets i.e., they convert debtors into cash. The cash realised can be reinvested by the company in profitable projects or used to pay back expensive debt.
Some borrowers might argue that on an annualised basis, the cost of invoice finance is high compared to a conventional loan. That comparison is like comparing apples to oranges because the two financing instruments work differently. A loan is a continuous source of finance whereas single invoice finance is discrete – providing finance for up to 90 days or less. Annualisation of the cost of invoice finance is not therefore consistent with its use. Though the interest rate on a loan might look relatively attractive, the cost of arranging and administering it must also be factored in, such as the arrangement, commitment, non-utilisation, and exit fees, plus servicing charges and legal costs of documentation. There might also be costs to pursue and recover bad debts, or to pay for credit protection. Invoice finance has its own arrangement and administration costs that might be more or less than a bank loan.
Invoice finance is therefore a credible alternative to a loan because:
it converts a company’s debtors into cash that may then be reinvested to potentially generate positive return for the company.
the company can transfer debtor credit risk.
it avoids using up a bank’s limited credit capacity for a company
it diversifies the company’s sources of funds so reducing its reliance on the banking sector.
companies can use it to raise cash as needed
security might not be needed
Dr P Singh of Cash for Invoices Limited finds out.
Invoice finance is a form of asset-backed finance –finance where your company uses a valuable asset as a source of finance.
Instead of waiting for the company’s customer to pay your invoice in 30, 60, or 90 days or longer, you can sell your invoice immediately so receive cash now.
Time is money however, so the amount you receive on sale will be less than the invoice amount. This reduction is not a loss, because you could invest the cash received and earn as much as the invoice amount by the time it is due to be paid.
In addition to having cash sooner, another advantage of invoice finance is the transfer of the risk that your debtor will fail to pay. A bad debt could mean you lose the money you were owed by the debtor and a lot more money paying debt collectors and solicitors to recover the invoice amount.
Many invoice buyers will want you to provide security for the money they give you, in case the invoices they buy become bad debts. Instead, they will charge you for bad debt protection.
Some buyers of invoices take on the responsibility and credit risk of collecting debts from debtors, but others will (if you can show you are competent) allow you to continue to undertake this key task.
Some buyers will not disclose to the debtor that the invoice has been sold nor interfere in the relationship you have with your customer (the debtor). The invoice finance is kept confidential rather than being disclosed.
Many invoice buyers will force you to commit to selling all your invoices to them. In addition to being inflexible, you will have to pay several other fees because the arrangement is similar to having a loan facility from a bank. Some companies, however, allow you to sell single invoices and when you choose, which removes the commitment and reduces costs substantially.
When buying a single invoice, the buyer will usually keep a retention in case the debtor fails to pay. They might for example buy your £1000 invoice for £950 but pay you £800 immediately, less their fee, and the balance of £150, when (if) the debtor pays.
There are many varieties of invoice finance, and corresponding costs, terms and conditions. It is attractive as a source of cash, a means of credit risk transfer, and it diversifies your company’s sources of finance. This last feature can be the difference between your company surviving and failing if your usual lender (your bank usually) withdraws its funding.
Is invoice finance for you?
Do you send customers invoices?
Do you need cash?
Have you supplied a good or service?
Do you have an invoice to sell?
If you tick all the boxes, then invoice finance might be right for you.
Invoice finance, debt factoring, invoice discounting or single invoice finance, are all variations of a theme: good cash management and not always a sign of desperation. Companies should choose to hold cash rather than illiquid invoices because cash can be reinvested in the business to generate high positive net present value, or can be used to pay off expensive debt. Both increase the company’s profit & loss. Invoices do not. Invoices are a drain on the business, generating no return yet costing money to fund outstanding debtors, either because of interest on debt or because of an opportunity cost, plus they represent a credit risk.
Factoring and invoice discounting have tarnished reputations because many of the firms that offer them take a multitude of fees off of the company selling its invoices and they often commit the company to selling more invoices than it would like to.
Single invoice finance is similar to conventional factoring but it can have several key advantages:
An illustrative quote: A single invoice finance company would buy a £100 30-day customer invoice off a company for up to £87.50 paid upfront less the buyer’s fee, and a retention of up to £10 when (if) the debtor pays the invoice, so £97.50 in total (less VAT on the fee). No further fees and no commitment to sell further invoices.
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