How to overcome the challenges of offering credit terms

24/05/2023

For many businesses, offering credit terms to customers is a necessary evil.

Necessary, because it enables you to remain competitive and attract more customers than you would if you chose to invoice on a pro forma basis. Many customers simply wouldn’t place orders with you if you did.

But evil, because offering credit terms can create a lot of problems. It’s not just the concern that customers won’t (and often don’t) pay on time, or even at all. It’s the fact trading on credit terms can create a significant cash flow headache.

Whilst having solid credit management practices can help with getting paid more promptly, they won’t entirely overcome the associated problems with providing your goods and services, paying suppliers and staff and meeting other ongoing bills in advance of being paid.

Yet there is one solution which can solve each of the challenges of offering credit to customers: invoice finance.

What is invoice finance?

Invoice finance is a funding facility that’s designed for businesses which trade on credit terms.

It involves an invoice finance company advancing up to 90% of your invoice value to you within just 24 hours of its issue. The remainder is then forwarded once the customer pays in line with your agreed terms, less a small fee for the convenience of using the facility.

Depending on your business and its requirements, you can access funding against every invoice you raise or, alternatively, only a select few invoices, keeping cash free to reinvest how you wish.

Yet this is only one of the ways invoice finance can help businesses which offer credit terms to customers…

What are the other benefits of invoice finance?

As mentioned above, one of the main problems with trading on credit terms is the risk your customers won’t pay. With invoice finance, bad debt protection can be provided (through ‘non-recourse’ facilities) to safeguard your cash flow against the threat of non-payment, either through protracted default or debtor insolvency.

Facilities can also include credit checking of customers, which reduces the chances of trading with uncreditworthy customers – and therefore bad debt – at the outset.

Similarly, where a business lacks the in-house expertise or resource to dedicate to efficient credit control, the invoice finance company can provide a dedicated sales ledger management function, collecting invoices from customers on your behalf. This is known as invoice factoring. As well as reducing internal overheads and potentially improving collections times, facilities can be conducted on a disclosed or confidential basis.

And because the funding you can access grows in line with your sales, invoice finance is typically more flexible than other funding facilities.

Would my business be eligible?

As long as your business sells to other businesses and on credit terms, it’s worth exploring whether invoice finance would provide value to your business.

It’s particularly beneficial for businesses which are growing quickly and need ongoing access to cash, businesses with seasonal trading patterns, start-ups, smaller businesses and those which find cash flow management a challenge. Invoice finance is also well suited to companies with unfavourable credit histories, as the funding is based on the creditworthiness of your customers.

With a wide range of banks and specialist invoice finance companies on the market, there’s a great amount of choice, whilst some lenders specialise in certain industries.

To discover how much cash you could release against unpaid invoices, use the tool below and get an instant quote:

Which is the right facility and lender for my business?

While we specialise in helping businesses to get paid faster through our range of debt recovery and credit control services, our sister company, Hilton-Baird Financial Solutions, introduces the most suitable funding facilities to businesses.

An independent commercial finance broker which specialises in invoice finance (they’ve been voted Invoice Finance Broker of the Year in four of the past six years at the industry-leading Business Moneyfacts Awards), their team will listen to your requirements and identify the most suitable options for your consideration.

With expertise across a wide range of facilities, they can also help to identify whether other funding methods could be more beneficial, and compare any existing facilities you may have in place against the current market to make sure they’re right for your business.

To speak to their team, call 0800 9774833 or request a call back at a convenient time here.