What are the alternatives to my invoice finance facility?

Invoice discounting has helped me avoid cashflow problems. However, recently some of my bigger customers have been requesting longer or deferred payment terms, so it will take longer to pay the bank back, and I will have to pay more interest. In light of the credit crunch, is this way of financing going to be as beneficial as it used to be, or can you offer any alternative strategies for dealing with this problem?

A. Kevin Weaver writes:

As your current financial package is not working as well in the current economic climate, you could review it with an independent adviser. As well as bank-delivered invoice finance facilities, there are a number of independent providers who work daily with businesses such as yours that may be able to provide a more tailor-made financial solution for your business. 

As well as making sure you have the right funding package in place, there are many other steps you can take to minimise the likelihood of late payment and reduce its impact on your business.

Being paid on time is increasingly linked to many other businesses further down the supply chain that may be experiencing their own financial difficulties. It’s critical to check professionally the financial situation of new customers before you start doing business with them, and review it regularly. It’s also important for you to stand your ground on credit terms where you feel confident to do so. These should be clearly detailed in your terms of business and be referenced on any invoices you issue.

By law, you are entitled to charge interest on any overdue payment, which is set at the Bank of England base rate plus 8%, and you should not be afraid to refer to this in your terms and conditions and invoke it where customers fail to pay within the specified time. Rather than using this as a threat, keep open regular channels of communication with customers’ accounts departments, and make them aware that late payment incurs extra cost for which you, as a business, must pass on.

It also pays to lead by example. By making sure your business pays its own suppliers and staff on time, as well as keeping everyone happy, you will contribute towards battling the late payment culture and minimising its impact on the economy.



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