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Finance options for immediate cash flow problems

For companies struggling with cash flow, one option is invoice financing so businesses can access a percentage of the value of an invoice before it has been paid by the client, explains Simon Carter.

A recent survey showed that one in ten businesses in the UK had their bank overdraft cut in the last 12 months with obvious effects on their growth plans. This removal or restriction of traditional finance is cited as one of the biggest challenges facing companies.

Despite clear indicators of an economic recovery, there continues to be a downward trend of net bank lending to small and medium sized businesses with a lending drop of £1.4billion in the last quarter. 

Payment still an issue

On top of this, small and medium sized construction companies also have to deal with the late payment culture that persists in some areas of the industry.

A recent parliamentary inquiry into the late payment of commercial debts has found that companies in the construction sectors are some of the worst offenders in terms of late payments and poor treatment of suppliers.

MPs have recommended a shake-up in the construction sector, in the form of a construction code of conduct, which will be led by an independent adjudicator.

This independent entity would be responsible for turning payment terms and conditions on their head. But this is a solution that is still a long time coming, if at all.

Many companies don’t know what to do when banks remove their overdraft facility, and can be reluctant to consider alternative means of funding for fear of risking existing assets. But this is changing, as companies of all sizes begin to look at asset based finance solutions.

Improving cash flow

For companies needing an immediate injection of cash, one option is invoice financing. An invoice finance package gives a company access to a percentage of an unpaid invoice.

It means the company doesn’t have to wait for their customer to pay, which in the case of some construction companies can be up to 120 days.

Construction companies can also get an advance on a project to buy supplies, pay wages and make other business investments, through invoice finance packages that cover uncertified applications for payment that are likely to occur during the project.

Other services included

Some services which can be included in construction invoice package finance include:

  • Bad debt protection – payment on time as the lender will provide you with the cash you are expecting, just in case your customer goes insolvent in these difficult times.
  • Management and collection facility – responsibility for managing and collecting any outstanding contract debts, saving companies time and money.
  • Confidential service – a totally confidential construction finance service.
  • Dedicated quantity surveyors – access to dedicated quantity surveyors ensuring everything runs smoothly whilst receiving payments for a job.
  • Solution of day-to-day funding issues – provide cash for new equipment or tools; help pay off suppliers earlier so a company can benefit from economies of scale discounts it previously may not have received.

Simon Carter is a director at Touch Financial

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