Having a healthy cash flow is a great position for any company to be in but it isn’t always possible to maintain that beneficial balance. This is true for businesses of any size and in any field and cash flow finance can help in a very broad variety of situations.
What cash flow solutions are specifically designed to offer is an alternative to more traditional forms of business finance such as company loans or bank overdraft facilities. These alternatives tend to be designed with the idea in mind that speed and simplicity is essential to businesses when cash flows are being squeezed.
Your company could benefit from cash flow finance solutions particularly if you are in a position of having a heathy turnover but you’re hindered by a lack of ready access to cash. Under these circumstances, a lack of cash typically results in limited flexibility and an inability to invest as necessary to maximise opportunities as they arise.
From this perspective, the fees or interest charges entailed by cash flow finance solutions can be well worth paying because they allow a company to continue making progress in pursuit of growth and operational advantage.
Another circumstance in which cash flow finance solutions can be of real value to businesses is if specific orders have been placed by an important customer and cash is required to ensure that those orders are fulfilled. Manufacturers, for example, might need access to cash in order to maintain production in the knowledge that failing to do so could be much more costly than the fees involved in securing short-term finance solutions.
Similarly, service providers such as a transport company might benefit from ready access to cash if it makes the difference between being able to meet the terms of a large and important contract. Cash in these circumstances can be used to pay staff and to secure the right resources to ensure that key clients are kept happy and that deal terms are met.
Another reason for using cash flow finance is if your company decides to prioritise immediate access to cash in order to pay the members of your workforce or your suppliers on time. These dynamics can also arise in the context of the recruitment industry, where making payments to employees on time can be difficult but necessary and where cash flow finance can help bridge financial gaps in important ways.
In the construction sector, cash flow finance can be used to allow suppliers to access early payment discounts, which are relatively commonplace and can be well worth securing where possible. Access to cash can also be a real benefit to construction firms who have issued invoices but are waiting on payments that are sure to come but which are delayed or slow to arrive.
Invoice factoring and invoice discounting are two of the most popular forms of cash flow finance currently available to businesses. These two similar but distinct processes give companies an opportunity to effectively raise money and access cash in the short term as they await payments from their clients.
As you might expect, there are fees to be paid before invoice factoring or discounting processes can be instigated but, particularly where creditors are applying real pressure, that price can be very much one worth paying. Typically, a buyer of one or a number of your invoices will pay around 90 per cent of the amounts due to you from third parties and they’ll also take on the responsibility of pursuing payments.
In effect, invoice factoring and discounting enable businesses to raise cash by leveraging their sales ledgers but it is also possible to access finance on the basis of fixed assets. For example, a company can leverage its machinery or equipment to negotiate loan deals and to ease cash flow concerns in the short-term and to be better prepared for the future.
Every business and each cash flow corporate finance situation is different from the next and it is very important that company directors find the service providers best-placed to provide relief and assistance. Communication and understanding is key, which is why Begbies Traynor’s experts and experience in the field can help. We only work with trusted lenders and service providers we know to be reliable and who understand how best to overcome cash flow problems however they arise.
We have offices throughout the UK and you can contact us directly to arrange a consultation and to find out how we can help you make the right choice for the future of your company.
Author: Keith Tully (Partner)
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