Cash flow management is both the most significant and most mundane issue keeping many businesses from making the leap from just getting by to thriving. The most commonly cited barrier to growth is a lack of finances, but a simple lack of funding can always be dealt with. An otherwise good business can normally attract the investors or secure the traditional loans it needs to realise its potential.
Rather, the issue is that businesses don’t have the funds they need precisely when they need them. Budget shortfalls happen all the time, even when business is going well. Depending on the day, an incoming payments might be late, equipment might break down, or supply costs increase unexpectedly. As a result, business leaders are often forced to spend their time juggling different budgets, chasing non-paying clients, and otherwise putting out financial fires instead of implementing their larger growth strategy or focusing on their larger goals.
Invoice finance is designed to help businesses cut through the noise, and get back to business. By resolving the core problem—a temporary lack of liquid capital—it greatly reduces the urgency of these tasks, making some of them redundant, and allowing others to be delegated safely.
Business leaders spend too much of their time fighting cash flow issues
Cash flow interruptions are a constant battle for businesses of all sizes, and the time spent dealing with them can undermine their ability to succeed both in the short and long term. Surveys show, for example, that small business owners spend approximately 20 percent of their time chasing down late client payments. Larger businesses, on the other hand, face unreliable internal budgeting, which can make it difficult to fully implement critical strategies, or to finish important projects in a timely manner.
The result is a business in chaos. While some decision-makers reorganise budgets to find the funds they need, middle managers have to find ways to operate within those ever-changing budgets. In time, the entire leadership structure is focused more on adapting to short-term financial pressures than on strategically pursuing long-term success.
Traditional financing isn’t suited to cash flow management
Businesses traditionally rely on loans and investors to supply them with the liquidity they need, but this isn’t well suited to managing short term cash flow issues. After all, a traditional loan can take weeks or months to negotiate, and building strong investor relationships can take even longer. Moreover, these typically involve large sums, meant to fund a growth strategy, or to otherwise bring the business into a new phase of development. They provide more substantial long term financial support, and are expected to provide commensurate returns to the investor or lender.
A cash flow management tool like invoice finance supports long term growth, but it doesn’t fund it. Instead, it helps businesses to cover the relatively small and temporary shortfalls that threaten to derail their larger efforts.That’s because invoice finance is not a loan. Rather, it’s a way for a business to give itself an advance on funds that it has already earned. The cash that the business accesses in this way was always its own; the only thing that changes is the time at which it’s available to spend.
How invoice finance works
The beauty of invoice finance lies in its simplicity. Rather than spending weeks or months negotiating with a lender, a business can simply trade an outstanding invoice for cash. The process, from initial application to cash in hand, typically takes less than a day. The financial institution receiving the invoice will issue the bulk of the payment right away, and then go on to collect the funds from the client before paying out the rest.
Instead of either waiting for an outstanding invoice to come due, or chasing down a late client, invoice finance is used to ensure that businesses are paid sooner, while eliminating the issue of late payments altogether. Because it’s so simple, businesses can use it to access funds on very short notice, allowing them to quickly deal with cash flow interruptions as they arise.
This allows businesses to keep cash flow issues from affecting their operations. More importantly, it keeps those cash flow issues, and the havoc they can wreak on budgets, from monopolising the time of business owners and leaders. As a result, the people responsible for the future of the business are better able to invest the needed time and focus to create and implement strategies to make sure that future is bright.