Invoice discounting is generally useful for profitable businesses that have difficulty reconciling the timing of cash coming in against the money going out. Below are some examples of invoice discounting put into practice in fields where discounting can prove particularly useful. Businesses in these sectors are typically funded by large clients with extended payment terms, making it challenging to maintain steady, healthy cash flow. If your struggling to decide if invoice discounting is right for your business, below are examples of how businesses in different industries use it.
Construction
Juggling incomings and outgoings can be challenging in the construction industry, particularly if you’re at the bottom of the pyramid. Sub-contractors at the end of the chain often experience lengthy delays in receiving payment.
Using asset-based lending companies to receive advanced funds can be helpful for independent contractors and sole-traders, providing them with enough capital to bid for jobs on an equal footing with established businesses. More working capital means you can invest in more materials and get going with other jobs.
Logistics
Late payment is a common problem within the logistics industry. It’s also an industry which incurs costs throughout the month, from purchasing fuel to keeping up with vehicle maintenance, on top of paying staff and keeping business operations afloat.
Using invoice finance can provide logistic companies with financial security, providing a regular influx of cash throughout the month (this steady income is key to growth within haulage companies, when releasing capital constantly is necessary to maintain or expand their fleet).
Manufacturing
The manufacturing industry is another one which requires careful juggling of cash in and cash out. Manufacture is a process of sequential stages, and one late payment can throw the whole process out of whack, delaying the production time and, as a result, the arrival of income in revenue.
Invoice discounting can help to remove the burden of aligning outgoings against income. With the time pressures removed, a manufacturing company can focus on the bigger picture, and use this available cash to expand, accept new orders and grow their enterprise without the pressures of short term cashflow issues.
Recruitment
The recruitment industry is notorious for having disparate cash flow. Business owners typically experience a large gap between paying their staff and receiving payment for their services, and struggle to get customers to pay on time. Company development can seem impossible for executives at recruitment firms experiencing such a significant lag between money out and money in.
Invoice discounting can provide an invaluable stop-gap for recruitment companies. Receiving cash for work done immediately can be a game-changer in this industry, easing the burden of payroll and opening opportunities for taking on more clients.
Case study
If your still not sure quite how factoring works, here’s a quick case study. A family-run recruitment company based in the midlands is looking to expand. The company provide temporary and permanent staff to fulfil a range of positions in the Derbyshire area, including positions in local councils and well-known charities. The firm has seen tremendous growth in the last year, owing to its excellent customer service. However, this growth has come with substantial financial pressure, as the owners struggle to reconcile their cash flow.
The company has a turnover of £500,000, which they expect to double over the next three years. To achieve this impressive growth, they require help to remedy the lag they are experiencing between their deadlines to pay staff and their income from clients.
The company has loyal clients who tend to pay on time. That said, many have payment terms of up to 90 days, which is difficult to reconcile with mounting payroll pressure in busy periods. The business approached an invoice finance broker to discuss their cash flow trouble.
The broker recommended that the company opt for invoice-based borrowing. They found the business an invoice discounting finance solution with a lender offering a 90% advance rate for the invoices. The broker negotiated a facility for £350,000, covering the firm’s entire sales ledger. Using this facility to support ongoing investments, the business expects to triple its turnover within three years, demonstrating how invoice discounting can enable company growth.
