Unpaid invoices are a daily problem and SMEs are always thinking of ways to improve working capital. No matter how familiar you are with this issue, it presents an ongoing risk to your business. When money that is owed trickles in late, it affects your ability to pay your staff and suppliers on time, which damages your reputation in the market and can threaten the very survival of your company.
An invoice finance solution is one of the more effective ways to improve working capital. It works by leveraging what is typically an SME’s biggest asset – the debtor book. In other words, invoice finance offers you a loan based on the amount of money you are owed. This enables you to deal with any late payments without resorting to expensive last minute measures.
Most major banks can provide faster payments, meaning you can transfer funds very quickly. It usually takes three to five days to process payments but this option enables a same-day turnaround.
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Faster payments are very popular for good reason. A three to five day waiting period is a considerable amount of time if your cashflow margins are tight. As a small business, you are relying on a certain amount of money coming in by a specific date so that you in turn, can pay your invoices on time.
However, faster payments do come at a cost. Each one you make is typically charged between £5-£10. When faster payments are not an option, a CHAPS (clearing house automated payment system) fee applies if you want to withdraw money against an invoice - usually £15-£20. Paying these sorts of fees once in a blue moon, won’t cause you any difficulties. Problems can arise though, if your business is consistently lacking in working capital, can’t pay invoices in advance, and thus has to pay these charges on a regular basis.
Planning and preparation
One of the ways to improve working capital, and avoid ending up in a cash strapped situation is to build up a solid financial reserve. Some small businesses can turn their cashflow issues around with careful financial planning and better operational management. Others rely on their business overdraft. With readily accessible funds, you can process owed funds on time – and avoid the last-minute stress and cost of setting up faster payment.
Nucleus is well placed to help you navigate your cashflow issues. As an alternative lender, we provide a range of invoice finance services that offer the same credit facilities as a bank with the flexibility of a P2P or Fintech provider. Our team specialises in contractual debt and has the financial expertise to structure alternative business funding that will help keep your business in good shape.
Get in touch with our experts today to discuss the range of ways to improve working capital that are available to your company.