Invoice finance, also known as invoice factoring or receivables financing, can be a useful tool for businesses to improve cash flow. While it may not directly help with pricing services or products, it can aid in managing cash flow and addressing the challenges associated with late invoice payments or monthly subscription payments.
Remember that Invoice finance involves selling your unpaid invoices to a third-party finance company at a discount. This provides you with immediate cash instead of waiting for customers to pay.
Many companies that have clients that are other business (b2b), would use invoice finance strategically for specific situations, such as large orders or projects where the upfront costs are substantial. This allows you to maintain a healthy cash flow while taking on larger opportunities.
A great example is the workforce industry (recruitment) which has many contractors. In order to pay contractors, the workforce company would invoice their clients and then have the invoice paid by the finance company (like FIFO Capital Ireland). By using this method, the contractors can continue working without having concerns about not being paid. Plus the company can also benefit from cashflow. The finance company, depending on the agreement, can be in charge of charing the invoice from the client.
Another key point to make is that the company should incorporate financing costs into pricing. Since invoice finance involves a fee or discount, it’s important to factor these costs into your overall pricing strategy. Consider the fees associated with the service when determining the price for your products or services to ensure profitability.
Companies that sell equipment and wait for orders to be fulfilled from the manufacturer may also opt for invoice finance to get paid quicker. This speeds up the entire process so there are no delays with payments once companies have invoiced their clients.
Remember that while invoice finance can assist with cash flow, it’s essential to have a comprehensive pricing strategy that considers all costs associated with your products or services. Always consult with financial professionals or advisors to tailor these strategies to your specific business needs.
Implementing a combination of these strategies can help businesses navigate the challenges of the new year to help maintain less stressful cash flow. Additionally, seeking advice from financial professionals and exploring invoice finance options can provide tailored solutions for specific business needs. Contact FIFO Capital Ireland today to discuss cash flow strategies for your business.