Supply Chain Finance Initiative To Improve Cash-Flow For Small Business

supply chain financeThe Prime Minister David Cameron is discussing a scheme to get the largest UK Companies supporting its smaller supplier companies.

The supply chain initiative has been suggested to work in the following manner. The large company receives an invoice from its smaller supplier. The large Company notifies its bankers that the debt (invoice) is approved and will be paid as per credit terms (30,60 or 90 days etc.) The Supplier is then able to approach its bank and borrow up to 100% as a cash advance against that invoice value. Thus helping the suppliers cash flow.

I know the Prime Minister is only trying to help, but this exact same product exists already, widely used and has been around for decades. This product is know as Invoice Finance… some may know it as debt factoring or invoice discounting.

This Government initiative just seems like another headline grabbing sound bite. The government really should spend their time concentrating on calming the markets and restoring confidence, reminding people the world will keep on spinning and massive opportunities exist out there.

If you would like to read the more on this article click here. If you would like to know more about existing cash flow finance products including factoring and discounting click here

Factoring – What is Invoice Factoring & How Does It Work

Sometimes referred to as a Full Service Factoring, this provides the complete answer to slow-paying customers, shortage of working capital and, if needed, protection against bad debt losses.

With an invoice factoring solution  the factor agrees to pay an agreed percentage of approved debts as soon as they receive a copy of the invoice. The percentage depends upon several issues, but 80-85% is common. The balance, less charges, is paid when the customer pays. This flexible finance keeps pace with business growth, without parting with control or equity.

The factor will also undertake all credit management and collections work, following an agreed credit policy to ensure faster customer payments without loss of goodwill.

The savings in administration are substantial, and faster customer payments mean less need to borrow and lower interest costs. In addition, some factoring companies offer the option of including protection against bad debt losses in their service. This safeguards profits, cash flow and enhances the balance sheet.

There will normally be a charge for the collections service and, if required, bad debt protection, expressed as a percentage of turnover. It is the subject of a formal quotation after we gain an understanding of a business and the workload to be undertaken. It is commonly between 0.75% and 2.5% of turnover.

For the finance provided in advance of collections, there is usually a discount charge calculated on the day-to-day usage of funds. It is likely to be comparable with normal secured bank overdraft rates. This type of finance is generally of interest to start-up and SME sized companies.

For more information on whether Invoice Factoring could help or be right for your business  and or to receive a free and with no obligation factoring quote please call Phillip Evans or apply online at Free Factoring Quotes

Also useful when considering factoring take a look at our invoice discounting pages