Startups
Do you own a new start company? There is a saying that 50% of new businesses fail within their first year – but this is wrong. It takes 5 years for 50% of these businesses to fail – approximately 82% of these failures is down to cash flow problems.
Contents
- How can invoice finance help a startup?
- How does it work?
- A real-world example
- What to do next
Benefits of Invoice Finance for Startups
Cash flow is one of the most important aspects of business to keep on top of. Invoice finance is a type of borrowing where a business has an agreement with a lender where they can release cash from unpaid invoices. Having this ability can change the rate your business grows dramatically, as you do not need to wait for your debtors to pay what they owe you.
Step-by-step guide to invoice finance
- Send your invoices
Firstly, you send your invoice to your customer, and another copy to your chosen lender.
- Receive up to 90% of the invoice value
Depending on the terms agreed, you will receive up to 90% of the upfront invoice value on the same day as when you issued the invoice. The prepayment terms depend on the sector you work in.
- Your customer pays their invoice
Your customer pays their invoice within the agreed terms of 30, 60 or 90 days.
- You receive the remaining value of the invoice
Once your customer has paid their invoice, you will receive the remaining portion of the invoice, minus the lender’s fee.
The following scenario is based on a recruitment company – but invoice finance is suitable for many different sectors.
A made-up example: Super Staff Ltd
Super Staff Ltd have sent supply teachers to different schools and send an invoice of £10,000 to their customer. They expect the invoice to be paid after 30 days from the end of the month. In the meantime, Super Staff Ltd receive a phone call requesting 10 more supply teachers for another school the following week – but they don’t have the cash flow to be able to pay the staff for that week, as they haven’t received payment for the first lot of supply teachers.
Fortunately, Super Staff Ltd have an Invoice Finance facility. They send a copy of the invoice to their lender and receive £9,000 that same day. They can hire the new staff ready for the week ahead and pay them at the appropriate time. After 30 days, the lender receives the invoice payment and sends Super Staff Ltd the remaining £1,000 minus their fee.
How do I get an Invoice Finance facility?
This is where Contact Business Finance comes in! We have a wealth of knowledge in the world of Invoice Finance and can put you in touch with the most suitable lender. In a free-of-charge service, we will compare the market for you to find what would be best for you and your business.
And it’s not just Invoice Finance we can help with – we can look at business loans, asset finance, trading finance and more.
For more information or for confidential chat about your business finance needs, give us a call on 01902 219260 or email info@contactbusinessfinance.co.uk.
