Cashflow finance – getting the facts straight

From Alan Hewitt

For any business owner, cashflow dictates whether you live or die. Protecting it and maintaining control must be an absolute priority if your business is to flourish. But with customers setting their own terms as to when you receive payment, this can be difficult to do.

There are a wide range of different methods to regain control of cashflow. But what do you give up for this control? Understanding the benefits and pitfalls of the offerings is essential if you are to select the right facility for your business.

Factoring or invoice discounting?

The terms factoring, invoice finance, invoice discounting, equipment finance and supply chain finance are more or less used interchangeably. However, there are some subtle differences – differences that can be very important for your business.

With factoring, the provider takes on the role of managing the sales ledger, credit
control and chasing customers for settlement of their invoices. The provider will want to manage the entirety of your ledger – meaning you cannot choose which invoices you fund.

With invoice discounting, a financier will advance a percentage of the face value of invoices, often around 70%. However, the business maintains control of chasing invoice payments. Invoice discounting can also be completely confidential as your customers simply pay you in the usual way.

Peer to peer (P2P) finance is another cashflow finance solution that is making lots of noise globally – not just with invoice funding, but with loans and investments of all kinds. is probably the best known example. With invoice funding via P2P, the business seeking funding can access investors directly via a technology platform. You state the terms you need and the investor sets the interest rate.

What’s the catch?

Of course, there are always things be aware of before committing to any type of loan agreement. For us, the biggest concerns with many of these solutions include:

Security – typically all these lending facilities require security. Whether it is bricks and mortar or directors guarantees, you will be required to provide on balance sheet security. This can impact your ability to access other forms of funding.
Amount loaned – most lenders will only advance between 80-90% of the face value of the invoice, with a further payment paid upon settlement of the account.
Contracts – other than P2P, the contracts required to access funding can be complex, often with heavy penalties for late payments or early exit.

For the investors in P2P, there are typically no safeguards in place for default or fraud. Although the investor may have security, the process to chase and recover debt can be onerous. Plus the investor may be waiting in line behind other creditors. We think this has the potential to make this type of funding expensive in the future.

How we differ

Apricity has been designed to be flexible and simple to use. It is important to note, that Apricity will only fund invoices to high credit customers. However, this why we can offer a very simple solution to our clients. Some of the crucial attributes include:

● Simplicity – there are no lock-in or cumbersome contracts to sign. Just a simple Terms and Conditions and director verification check.
● Flexibility – our customers choose which invoices to fund and when
● No impact to the banking relationship – as we do not require a GSA, we allow our clients’ banking relationship to continue. This allows them to continue building a good credit history with their bank and will not impact on their borrowing capacity.
● No additional security – the only security we will ever require is the invoices we fund
● A higher advance rate – we will typically advance up to 95% of invoices, with a further 2% paid when invoices are settled within 30 days.

Additionally, we manage the relationship with our investors, so you need not worry about finding the funder, nor varying interest rates.

Want to know exactly how Apricity compares? Click the link here.

Visit here for more information on how invoice finance works, or call us if you’d like to know more.