Why do we need invoice finance? Reply

Pay up.

73% of UK SME’s have experienced late payment in the last 12 months and on average are paid 41 days later than the terms agreed.

This is despite moves to try to improve things like the Prompt Payment Code

The Prompt Payment Code (PPC) aims to improve the supply chain cash flow for UK firms by tackling the issue of late payment.

The Code is sponsored, hosted and administered by the Institute of Credit Management (ICM) on behalf of the Department of Business Innovation and Skills (BIS).

Code signatories undertake to:

pay suppliers on time

  • within the terms agreed at the outset of the contract
  • without attempting to change payment terms retrospectively
  • without changing practice on length of payment for smaller companies on unreasonable grounds

give clear guidance to suppliers

  • providing suppliers with clear and easily accessible guidance on payment procedures
  • ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
  • advising them promptly if there is any reason why an invoice will not be paid to the agreed terms

encourage good practice

  • by requesting that lead suppliers encourage adoption of the code throughout their own supply chains

The Prompt Payment Code has the backing of the UK Government, the British Chamber of Commerce (BCC), the Confederation of British Industry (CBI), the Forum of Private Business (FPB), The Federation of Small Business (FSB) and the institute of Directors (IoD).

Financial software firm XERO issued the research, which revealed that:

  • Over half (52%) of UK business owners worry about unpaid invoices
  • Worst affected regions found to be London where businesses spend 1.5 days per month chasing payments, followed by 1.3 days by businesses in Wales
  • The business sector spending the most time chasing payments was found to be HR (3 days), followed by IT & Telecoms (1.8 days) and Manufacturing & Utilities (1.7 days)

It also showed that the two main reasons cited by small business as being the causes of late payments were that their customers were also waiting for payments themselves (32%), as well as a lack of consistency on payment terms (27%).

For SME’s understanding their Cash Cycle is critical as lack of cash flow will kill your business, here is a example of how to calculate the cash cycle

cash-cycle

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000 per year, you will need cash of £136,986. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.

CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

But Credit Management may not be enough on its own, perhaps Invoice Finance might help?

Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.

  • Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
  • Invoice discounting is suitable for business with an established credit control department.
  • Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
  • Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.

In August 2013, the UK Government became a Buyer of invoices on the MarketInvoice Platform, investing directly in UK SMEs looking to access working capital and grow their businesses.

How does it work?

Any company can use MarketInvoice provided its sells goods or services to other large businesses.

Its a ‘pay as you go’ service.

Companies are vetted and the invoice must be to a large corporate not to other SME’s.

Its confidential so your customer will not know you have used MarketInvoice, if the customer doesn’t pay you will have to refund the investor.

There are other similar products on the market from other providers so its worth considering the options available.

Don’t let lack of cash flow kill your business!

steve@bicknells.net

Would you like to borrow against a single invoice? Reply

Close-up picture of an invoice

In August 2013, the UK Government became a Buyer of invoices on the MarketInvoice Platform, investing directly in UK SMEs looking to access working capital and grow their businesses.

Why is the Government investing funds through MarketInvoice?

The UK Government, via the Department of Business Innovation and Skills (‘BIS’) and as part of the ‘Business Finance Partnership’, has committed to using alternative finance providers to channel much needed growth funding to UK SMEs.  The scheme is investing £1.2 billion into increasing lending to small and medium sized businesses from sources other than banks.

How does it work?

Any company can use MarketInvoice provided its sells goods or services to other large businesses.

Its a ‘pay as you go’ service and you can see the estimated costs by using their calculator

Companies are vetted and the invoice must be to a large corporate not to other SME’s.

Its confidential so your customer will not know you have used MarketInvoice, if the customer doesn’t pay you will have to refund the investor.

So far £163m of invoices have been funded by MarketInvoice.

Of course it would be better if customers always paid quickly!

steve@bicknells.net

Supply Chain Finance – its like Invoice Finance in Reverse 1

I received my copy of CIMA – Excellence in leadership Issue 1 2012 today and I have been reading all about Supply Chain Finance.

I hadn’t heard of it before, the article explains how businesses like Travis Perkins have been working with Santander to find a way to help their suppliers.

Santander offer to pay the suppliers immediately for a fee and the client (TP) pays on their normal trading terms, this is better for the suppliers than factoring because it improves their working capital position and based on the article the fees are cheaper than factoring.

Its good for the client because they aren’t borrowing money either, but the client needs to have a good credit rating. Here is link for more details:

http://www.santander.co.uk/csgs/StaticBS?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1223417457873&cachecontrol=immediate&ssbinary=true&maxage=3600

Have you used this type of finance? do other banks offer it?

steve@bicknells.net

The Cash Cycle – What is it? what is your Cycle? How can you improve it? 9

As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.

Here is a great example from Steve Grice for an average business

Average time to collect payment from customers           60 days            plus..

Average days sales held in stock                                   25 days            less..

Average days taken to pay suppliers                             35 days            equals…

Cash cycle                                                50 days

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000, you will need cash of £136,900. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

http://stevegrice.wordpress.com/2012/02/06/working-capital-cycle/

Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.

CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf

But Credit Management may not be enough on its own, perhaps Invoice Finance might help?

Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.

  • Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
  • Invoice Discounting is ideal if you have an annual turnover above £500,000
  • Invoice discounting is suitable for business with an established credit control department.
  • Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
  • Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.

For more details look at http://www.rbsif.co.uk/invoice-financing/invoice-discounting

If your business sells to end customers you might consider Card Processing Advances http://www.credit-card-processing-loans.co.uk/

You must be masterful. Managing cash flow is a skill and only a firm grip on the cash conversion process will yield
results.

steve@bicknells.net