# Should your business reconsider invoice financing? Top tips on why reappraising this method liberates business cash flow
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-29
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Unlocking Invoice Financing for UK SMEs: Top Tips and
Meta Description: Discover how modern invoice financing services can help small businesses overcome late payments and improve financial stability.
URL: https://financedigest.com/should-your-business-reconsider-invoice-financing-top-tips-on-why-reappraising-this-method-liberates-business-cash-flowhtml

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_By **Inderveer Tatla,** Chief of Staff, AREX Markets_

With pressure mounting on SMEs all over the country, keeping a close eye on working capital is a major priority. It comes as no surprise that UK Finance’s Business Finance Review found that among its members, there has been a significant increase in businesses seeking invoice financing options in the first half of this year [alone](https://www.ukfinance.org.uk/news-and-insight/press-release/new-lending-smes-remains-stable-in-first-half-2022). Economic conditions have only worsened since that time, and many small business owners are voicing real concerns about how they will survive. As so much progress has been made to innovate the invoice financing industry, led in many cases by new offerings from the alternative finance space, here are some top [tips for businesses](https://www.financedigest.com/tips-on-how-startups-can-turn-their-business-into-a-success.html "Tips on how startups can turn their business into a success") looking to unlock the value in their often delayed process of issuing invoices.

**Set aside any preconceptions**

The invoice [financing services offered today are not the same as those led by big banks ten years](https://www.financedigest.com/2016-the-year-of-technology-financing-the-year-of-business-growth.html "2016 – THE YEAR OF TECHNOLOGY FINANCING, THE YEAR OF BUSINESS GROWTH") ago. All too often, this option is seen as a method of last resort by businesses, concerned about what it would [say about their business](https://www.financedigest.com/exclusive-qatarenergy-boss-says-world-cup-tension-will-not-impact-german-business.html "Exclusive-QatarEnergy boss says World Cup tension will not impact German business") operations. However, modern offerings no longer take a sizable chunk out of the [return to the business](https://www.financedigest.com/despite-return-to-work-virtual-meetings-will-continue-to-disrupt-business-as-usual-in-finance.html "Despite Return to Work, Virtual Meetings Will Continue to Disrupt Business as Usual in Finance"), and have been structured to be much fairer. Our offer, for example, has been crafted to give [small businesses](https://www.financedigest.com/small-businesses-run-out-of-cash-before-they-run-out-of-potential.html "Small businesses run out of cash before they run out of potential") the most flexibility possible, with options of just financing single transactions as well as more common longer term contracts. This [means that businesses](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?") can just trial the service if they are unsure, or keep control of their finances by only utilising this offering when needed.

**[Tackle the late payments](https://www.financedigest.com/how-biometric-payments-are-tackling-financial-exclusion.html "How Biometric Payments Are Tackling Financial Exclusion") problem at source**

One of the biggest problems many small [businesses face is late payments](https://www.financedigest.com/technology-is-a-tonic-for-late-business-payments.html "TECHNOLOGY IS A TONIC FOR LATE BUSINESS PAYMENTS"), often from much larger providers with set contract terms. This issue is sharpening in the current climate, and [studies](https://www.business-live.co.uk/enterprise/thousands-smes-struggling-late-payments-25474268) have shown that smaller businesses are facing longer and longer delays on their issued invoices. Accessing invoice finance services can smooth out this process, overcoming any unplanned or lengthy gulfs in payment and ensuring that [money is back in the business](https://www.financedigest.com/how-to-save-money-on-business-tripsabroad.html "How to save money on business trips abroad") where it belongs, especially in time to take care of important monthly outgoings such as paying staff. Average profits for small businesses in the UK [sit around £11,000](https://www.money.co.uk/business/business-statistics#:~:text=The%20median%20profit%20of%20SMEs,in%202021%20at%20%C2%A39%2C000.) while the current average for amounts ‘in waiting’ from late payments per UK SME is around £20,000, according to Sage. And the extra cost of late payment that small [businesses incur to tackle late payments sits at a staggering £684m according to Xero – it’s easy to see how this state of affairs leaves UK SMEs incredibly financially](https://www.financedigest.com/financial-advice-for-starting-your-own-business.html "Financial advice for starting your own business") vulnerable.

**More effective** [business planning](https://www.financedigest.com/setting-the-pace-cognitive-financial-planning-and-analysis-for-business-agility.html "Setting the pace – Cognitive financial planning and analysis for business agility")

We have worked with a number of small businesses who have told us that access to invoice [financing](https://www.financedigest.com/1-in-3-uk-businesses-looking-for-finance-are-finding-it-harder-to-get-a-loan.html "1 in 3 UK businesses looking for finance are finding it harder to get a loan") has transformed their business operations by allowing them to plan ahead more effectively. Particularly, in sectors such as construction, smaller [operators often feel pressured to accept longer payment terms](https://www.financedigest.com/ubisoft-vows-to-get-back-to-operating-margin-above-20-in-medium-term.html "Ubisoft vows to get back to operating margin above 20% in medium term") to be able to access sizable contracts. However, the late [payments issue means that these companies often find themselves squeezed when it comes to taking on the responsibility for securing](https://www.financedigest.com/allpay-signs-with-eckoh-to-secure-telephone-payments.html "allpay signs with Eckoh to secure telephone payments") workforce and materials ahead of time. Examples such as this place a tremendous burden on the SME. Accessing invoice finance regularly can mitigate these [cost burdens](https://www.financedigest.com/blessing-or-burden-what-else-could-you-buy-for-the-cost-of-your-timeshare.html "Blessing or burden? What else could you buy for the cost of your timeshare?"), which means that companies can overcome any sizable outgoings; ensure that the working capital within the business is sustained at a workable level; and also let them forecast more effectively based on that financial security. Many have been able to bid for – and [win – more sizable contracts](https://www.financedigest.com/incentive-fm-group-wins-contract-with-global-events-company.html "Incentive Fm Group Wins Contract With Global Events Company") as a result, and ensure that their operations are fighting fit and growing. When the country is braced for significant economic discomfort, this option of accessing the SME’s own income, more quickly, frees up both [business owners’](https://www.financedigest.com/5-reasons-why-you-need-to-step-into-your-ceo-role-as-a-small-business-owner.html "5 Reasons why you need to step into your CEO role as a small business owner") time when it comes to chasing down payments, but also lifts the worry about fluctuating cashflow.

**Avoid taking on further debt**

Perhaps the biggest concern for many [business operators at the moment is the concept of taking on further debt to shore up their company](https://www.financedigest.com/keeping-an-eye-on-company-purse-strings-where-do-businesses-go-wrong.html "Keeping an eye on company purse strings – where do businesses go wrong?") finances. Recent research has found that a quarter are looking to take out personal [loans to support their businesses](https://www.financedigest.com/types-of-business-loans.html "Types of business loans"), which opens not only the enterprise but also their personal lives up to further risk. The current climate comes hard on the heels of repayments of government Covid loans, as well as [facing the impact of widespread lockdowns on company](https://www.financedigest.com/disconnected-customers-are-one-of-the-biggest-problems-facing-financial-companies.html "Disconnected customers are one of the biggest problems facing financial companies") incomes. Businesses who consider financing their invoices will swerve burdening their balance sheets with additional repayments – not to mention the time it would take to research and find the best interest rate option for business lending in the market and calculating the likely impact to the company books in the long term.

When it comes to invoice financing, not all service providers are the same, and savvy [business owners should look carefully at the small print and understand the cost](https://www.financedigest.com/top-5-ways-businesses-can-save-on-energy-costs-in-q4.html "Top 5 Ways Businesses Can Save on Energy Costs in Q4") of financing before seeking to access cash. But in a market where many SMEs are facing significant [business challenges](https://www.financedigest.com/the-maserati-100-one-hundred-business-disruptors-challenging-the-establishment.html " ‘The Maserati 100’ One Hundred Business Disruptors Challenging The Establishment"), reconsidering the invoice financing option may just provide them with the financial flexibility they are looking for.


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