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5 funding options made for improving cash flow

18/02/2019 / Comments 0

5 funding options made for improving cash flow

When your business is experiencing cash flow issues, it can often feel like you’re left with limited options. Understanding what funding solutions are available can help you get ahead of the problem and prevent it becoming an obstacle to growth.

Cash flow problems can be the result of many different factors, as you can see from this article summarising 12 of the more common causes. While you may be able to plan for some of these, often they will come about with little or no warning.

These problems are particularly common among smaller businesses, with 16% of SMEs surveyed saying that if they had access to additional cash flow, they would use it to meet their current obligations.

So, what can you do to mitigate the effects of a cash flow problem becoming a financial crisis?

The most important thing is to get ahead of the problem early and be prepared to act. Although something may seem like a minor issue, it doesn’t take long for several problems to snowball and leave you with a much greater financial strain.

Know your options

Whether you are currently experiencing cash flow issues or not, understanding your options regarding funding means that you can respond quickly and make an informed decision if the need arises.

Outlined below are 5 key funding options that you may want to consider.

1. Invoice Factoring

Invoice factoring allows you to release up to 90% of the value of an invoice within 24 hours of its issue. This option offers flexibility as it grows in line with your sales ledger and can also offer you credit protection.

One in 10 invoices owed to SMEs are paid late, and these businesses spend an average of 15 days a year chasing payment on outstanding invoices.

Invoice factoring is a great way to bridge the gap that can be caused by trading on credit terms and additionally allows you to reduce in-house overheads and improve collection times, with the use of the lender’s dedicated sales ledger management service.

You can download the full diagram of how invoice factoring works here.

2. Spot Factoring

Like invoice factoring, spot factoring (or single invoice factoring) can allow you to release up to 90% of an invoices value in 24 hours of its issue. However, instead of providing funding against your whole sales ledger, spot factoring allows you to release cash from individual invoices.

This allows you fast access to the cash tied up in unpaid invoices without tying you into a long-term funding facility. It’s a particularly good option for high value invoices or those with long payment terms and can suit new businesses or those without a strong credit history, as funding decisions are based on your customer’s creditworthiness.

Read our guide to spot factoring here for more information

3. Asset Finance

If you are looking for funding to secure new equipment or machinery, or currently have a lot of money tied up in equipment and machinery, you may find that asset finance is a good fit for you.

Options when you’re looking to buy new equipment include hire purchase and finance leases. A hire purchase agreement involves the hire purchase company buying the asset you require and leasing it back to you for regular payments, with the option for you to buy the asset at the end of the lease.

Similarly, a finance lease involves the company buying the asset and leasing it back to you, but at the end of the contract the company will sell the asset, and you may benefit from a share of the proceeds.

If you already have money tied up in assets, you may want to consider asset refinancing. This involves selling your assets to a finance provider and then leasing it back from them in return for fixed payments.

All these options can help you manage your cash flow with fixed monthly payments and can also protect your company from asset depreciation.

Read more about asset finance here

4. Loans

Although there are many other options, business loans are still a great way to raise working capital or fund growth and should form part of your considerations.

Loans provide quick access to money that can be used for any business purpose and can be a good option if your business has no fundable assets. It’s also possible to get fixed interest rates so that you will know the exact value of repayments throughout the loan period.

Download our ultimate guide to business loans

5. Peer-to-Peer lending

An increasingly popular alternative to traditional bank lending, peer-to-peer lending allows businesses to borrow money from private investors.

Before you can secure this type of funding, you must have a good credit score and typically at least two years trading history, as this lessens the risk to potential investors. You will also have to be clear on the purpose of the funding and how it will be spent.

However, if you meet these criteria, peer-to-peer funding is typically easier and faster to secure than traditional bank loans and comes with more competitive interest rates, as investors will bid against each other to win your custom.

Take a look at the benefits of peer-to-peer lending

Find the right fit

Securing funding for your business is not only about improving cash flow, it can also allow you the chance for new growth and opportunities, help you to secure discounts with suppliers and purchase the assets you need to succeed.

Whatever the reason is you may be seeking funding, it’s always worth taking the time to find the solution that work best for you.

If you want any more information on any of the solutions above, or you are still searching for a solution that will work for you, we can help you discuss your options as an independent commercial finance broker. Contact us today on 0800 9774833 or request a call back at a convenient time to see how we could help your business.

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Some of the funders we work with

  • Partnership Invoice Finance
  • PNC Business Credit
  • Ultimate Finance Group
  • Catalyst Finance
  • Secure Trust Bank
  • Giant
  • InvoCap
  • Boost Capital
  • Bibby Financial Services
  • Lloyds Bank Commercial Finance
  • Santander Corporate & Commercial
  • Barclays
  • 1pm
  • Woodsford Tradebridge
  • 4Syte
  • Pulse Cashflow Finance
  • ABN AMRO Commercial Finance
  • iwoca
  • Asset Advantage
  • Market Invoice
  • Regency Factors
  • Merchant Money
  • Innovation Finance
  • IGF Invoice Finance
  • Investec
  • Shawbrook Business Credit
  • Creative Capital
  • Nucleus Commercial Finance
  • Leumi ABL
  • Metro Bank SME Finance
  • Trade Finance Partners
  • Davenham Trade Finance
  • Close Brothers Invoice Finance
  • Spotcap
  • Haydock Finance Ltd
  • Skipton Business Finance
  • Team Factors
  • Roma Finance
  • Davenham Asset Finance
  • Royal Bank of Scotland
  • Aldermore Invoice Finance
  • GapCap Cashflow Finance
  • Calverton Finance
  • Positive Cashflow Finance

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We are a credit broker and not a lender and offer credit facilities from a panel of lenders

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