Upon completion of a deal, one of our introducers said to us, “Selective Receivables Finance is fantastic – why don’t more businesses use it?” We are struggling to think of reasons why – especially when you consider what all SMB business owners are looking for:
The cliché “cash is king” is said for good reason. In order to grow, businesses need a steady cash flow. By using Receivables Finance businesses can smooth the bumps without tying into lengthy contracts with complex fee structures.
Get immediate access to cash without taking on debt
Traditional loans are typically carried on the balance sheet and charged monthly service fees. Selective Receivables Finance works differently. By speeding up access to the money that is already owed from its buyers, it makes it possible for a business to pay its suppliers, and consequently avoid supply chain constraints.
Choose how much money, and how often
Without complex lengthy contracts, businesses have complete control over which individual receivables they would like to finance. As the finance is usually paid back in a month or two (when the debtors pays), companies can access the funds again and again, like a revolving line of credit. They can even factor in the cost of finance to those customers who continuously pay late.
Win contracts and keep customers loyal
Businesses, particularly when trading overseas, need to remain competitive. One of the ways to do this is by providing credit terms. Receivables Finance allows you to take on larger and more lucrative contracts without waiting 90 days to get paid and stretching cashflow too thin. Here at AP, we have clients asking what we can offer before they have even entered into contract, using it as a real-time credit test and commercial tool.
Receivables finance also allows a business to extend credit lines to its loyal customers who require credit facilities. Businesses can spend more time focusing on growth, and less time worrying about how to fund their next deal.
Receivables finance provides an advance against the receivable. Fees will be collected when the original receivables are settled by the customer. Typically, there are no interest payments. All fees will be quoted on the individual receivable up front, meaning you can factor in pricing before you drawdown.
No security or personal guarantees
When taking out business finance, the last thing a director wants is to put personal assets on the line. Receivables finance takes security over your existing outstanding receivables therefore you can finance work you have already completed.
Funding amount based on the strength of your customer not on your own company
Because of the sign off process and where the liability lies, the amount available to you is often written based on the strength of your customer, not on your business. Meaning, it does not matter if you had a tough year. If you done the work, provided the services or sold the products, then you may be able to release up to 80% of cash against the receivable.
Apply for finance in hours not days
The entire application for Receivables finance can be done online. All documents are requested up front. Businesses can connect to the funders system online, flag unpaid receivables and apply on the spot. There are inevitably due diligence information requirements, but money can be in the business account within 24 hours. For those less tech-savvy, a simple extraction of CSV or PDF files from accounts software via email can be used.
Reduce the risk of late payments and bad debts
A recent study by Tide Bank found that the average UK SMB is chasing five outstanding receivables at any one time. This amounts to an average of £8,500 being owed and 1.5 hours per day – or almost 900,000 hours in total, across all SMBs, per day – being used.
Of course, you can take legal action against buyers who fail to pay. But, an receivables finance provider does their own credit check on the buyer and will often take out credit insurance to cover non-payment. This is another weight off the SMBs mind.
Please note that even within Selective Receivables Finance, funders can vary. Make sure that you fully read the contract before you take out finance and ensure that this is the right funder and the right option for you. But in summary, receivables finance enables a business to access funding immediately from their biggest asset, their business. Providing additional cash to put back into the business to purchase more inputs to sell product quicker. Selective Receivables Finance also helps businesses to inject cash back into people to complete more services, thus increasing turnover and profits.