Are extended payment terms placing stress on your company cashflow?
For smaller businesses it is always worth investing effort in streamlined invoicing processes which help stabilise cash-flow and minimise payment delays.
Invoice terms define how a business likes to be paid, and often encompass information such as acceptable forms of payment and any late penalties. The due date is perhaps the most crucial point of all.
While 30 days has traditionally been the standard, deadlines for payment are something you need to discuss with any client before starting work, and they vary considerably from one industry or sector to another. Large retailers, for example, can insist on extended terms beyond a month to 45, 60 or even 90 days.
Without firm agreements in place, cashflow headaches can result from any payment terms longer than 30 days, particularly when you need to pay suppliers, staff wages, VAT and PAYE before receiving any money in yourself.
If you run a shop and receive immediate cash, that’s one thing. But if customers pay after you’ve provided them with a service or goods, bear in mind that effectively you’re offering them credit, and you may need to bridge the gap in some way.
Debtor days, which can be calculated in several ways, is a measure of how quickly a business gets paid and shows the average number of days taken for a business to collect payments from clients. It can reveal a lot about the state of the business; a longer number of debtor days may mean that cash is in short supply with obvious consequences resulting.
Countering the impact of slow payers
Clearly there is a lot businesses can do, from invoicing promptly to using efficient billing software to chase unpaid invoices effectively and making invoices and payment terms clear. However, especially in the current climate, delayed payments can always happen.
You could consider a loan or overdraft. But invoice finance could well prove a far more effective way to fund and grow your business. In a nutshell, invoice finance provides funding of up to 90% of the gross sales invoice, typically within 24 hours of the invoice being raised.
The remaining 10% of the balance is paid once the end client has settled the invoice in full.
The cost for this service is either based on a percentage of the value of the original invoice, and between 70 and 80% of providers charge in this way. Alternatively, it’s charged as a flat monthly fee. It often depends on the particular situation or the preference of the parties involved. You also pay a finance charge on the money that is borrowed and of course the longer that invoices remain unpaid then the higher the interest/finance costs for the business.
To benefit from a service like this you need to be providing goods or services business-to-business and raising invoices in arrears after these have been delivered.
How we can help
We can help your business long and short-term as the current crisis continues, allowing you to resolve any immediate cashflow issues. With many years’ experience to our name, we offer various finance solutions, and can even better any existing arrangement you already have with an invoice discounter.
Get in touch and we can discuss some options before connecting you with the finance provider we think is the best match for your individual needs.