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How Invoice Finance Can Help Manage Cash Flow Gaps

Most companies, particularly if they are relatively young or small, will face a cash flow squeeze at some point. Only a few years ago, the first port of call would have been the bank manager who could invariably be relied upon to help with an overdraft facility. Nowadays, however, that solution is less likely to be available as the banks have been withdrawing SME overdrafts at an alarming rate. That’s where invoice finance can help.

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Companies are now faced with having to seek alternatives: either a short-term loan, often at quite high interest rates, or an invoice finance facility where the money is borrowed against outstanding debtors. Invoice Finance has evolved considerably in recent years and is certainly no longer the ‘one size fits all’ solution it once was. Now it comes in many different flavours including Factoring, Invoice Discounting and Selective Invoice Finance, sometimes referred to as ‘Spot’ Factoring.

The right solution will naturally depend on the individual circumstances and companies in high-growth situations with a regular requirement for working capital might find that a full invoice discounting facility – in which a contract is entered into for at least a year to finance a proportion of the whole debtor book – is right for them. The provider of the finance will take a debenture over all the company’s assets as security and will invariably seek personal guarantees from the directors as well.

In many instances, however, cash flow problems are temporary, which means there is no necessity to commit to a long-term and potentially expensive arrangement just to solve a short term glitch. Selective Invoice Finance such as that provided by Satago – where the borrower can choose to finance only certain invoices – can represent the most cost-efficient, flexible and discreet way to bridge the cash flow gap.

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By linking directly to your accounting software, the process is made quite straightforward and allows the borrower to know exactly the amount they can raise against a particular invoice and at what cost. It is also fast and efficient – the money can be in your account within hours – and, as importantly, low cost in real terms for the convenience it provides. Should the need for temporary finance arise again in the future, the borrower just selects one or more additional invoices and repeats the process.

Of course, it does help if a company is able to look ahead and predict with a reasonable degree of accuracy when the financial pressure points may occur. Fortunately, anticipating cash flow problems is easier now than it has ever been. Technology in the form of specially designed software that links directly to accounting systems has been one area where significant progress has been made.

An increasing number of small businesses have found that Float, which has developed award-winning software to forecast cash flow, can provide the answer instantly, thus saving many hours each month pouring over spreadsheets.

Any company that can monitor its cash position and has the tools in place to manage shortfalls prudently will strengthen its prospects considerably. Furthermore, it sends an important message to banks, shareholders, the board of directors and investors that the management team has a firm grip on the financial aspects of the business, which will certainly help when that company is talking to external sources about providing additional funding for growth.


About Satago

If you’re a UK Limited company, Satago can help you access the funds tied up in your unpaid invoices in as little as 90 minutes. Click here to find out more.

Steven Renwick

Steven Renwick is the Chief Product Officer at Satago.