Cash is the life blood of a company. If you run out your business may have to close. There are alternative options for raising cash if a bank loan is not available.
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Invoice Factoring is the process of raising cash against outstanding company invoices. You could borrow up to 90% of the value of your invoices as soon as they are issued.
The process normally involves a factoring company taking over the whole of the company’s invoicing and credit control function.
The amount which can be borrowed depends on the turn over of your business (value of invoices being raised). Also the profile of the company’s clients.
A company can use invoice factoring to overcome having to wait for up to 120 days for invoices to be paid.
Invoice discounting is similar to invoice factoring. The company borrows money against invoices raised. However it is more discrete.
Clients do not have to be informed of the arrangement. The business retains control of cash collection and credit control functions.
Lenders see this method as a greater risk. As such they will not lend as much against each invoice raised.
Asset refinancing is the process of borrowing cash against the value of company assets. Money is lent against valuable items which the company already owns. These could be things like equipment, machinery or property.
This type of cash generation is similar to where an individual releases equity by re-mortgaging their house. The amount of cash that can be borrowed depends on the value of the assets.
Normally the business can borrow up to a maximum of 70% of the value of its assets. Of course this is dependant on the underlying strength of the company. The value is established by a reputable independent valuer.
Assets that are already encumbered can also be refinanced as long as the existing finance company is paid off as part of the process.
Trade Finance allows a company to borrow cash against a confirmed order. Generally this type of finance is used to pay suppliers required to fulfil the order. The finance company will normally pay suppliers directly.
Once the order is fulfilled and accepted the finance company will invoice the customer and collect payment. Any funds remaining after the finance has been paid is then returned to the company.
Trade Financing options are not only useful for companies which are on a reasonable financial footing. They can also be considered in support of a business rescue solution such as a Pre Pack.
Want to discuss your options for raising cash for your business? Give us a call (0800 180 8440) or complete the form below to speak to an expert.