Many companies, especially during their start-up phase of development, will be paying out more than they get in in cash. That increases their risk of insolvency. The last thing an entrepreneur wants is for the bank lending to the business to call in the receiver to recover the bank loan because interest was not paid.
Before the cash flow position falls to this low level, the entrepreneur should have sought to increase cash in the business.
One way to do this is to sell invoices for cash, and Cash for Invoices Limited could be the buyer to turn to for that cash.
For just one fee that depends on factors including the time to payment of the invoice and the risk of the debtor, Cash for Invoices Limited will buy a single invoice and pay the entrepreneur immediately up to 97.5% of the face value if the invoice less up to 10% which is a retention in case the debtor defaults on payment.
This retention is not a payment by the seller but is a reduction of the sale price. For example, 30-day invoice has a face value of £100. Payment received by seller in cash is £97.5 less £10 = £87.50. When the debtor pays £100 on the due date (30 days from the invoice date), Cash for Invoices Limited pays £10 to the seller. Total sale price = £97.50 Fee to Cash for Invoices Limited = £2.50
The sold invoice belongs to Cash for Invoices Limited and the debtor must pay the invoice direct to Cash for Invoices Limited. If the debtor fails to pay then Cash for Invoices Limited will NOT sell the invoice back to the entrepreneur. The original sale is therefore non-recourse for the seller.
Cash for Invoices Limited will, perhaps with the assistance of the entrepreneur, seek payment off the debtor using letters and warnings of legal action. If payment is not received, the debt can be turned over to collection agencies or take legal action through the courts..
Where the debtor has defaulted, Cash for Invoices Limited will not pay the seller the 10% retention.
If the entrepreneur needs additional cash flow then it may sell one or more invoices but it has no obligation to. There is no facility or commitment and so no arrangement fee paid to Cash for Invoices nor any ongoing fees. No debt is created. Cash for Invoices Limited's single invoice finance service is a simple, flexible, and transparent way for a business to raise cash using its invoices whenever it needs to.
Unlike many bank invoice discounting facilities, Cash for Invoices Limited's single invoice finance service does not force the business to commit to sell all its sales ledger and pay service charges or an arrangement fee.
Where a business is getting pressured by a supplier to pay an invoice or the due date is approaching and the business has no cash, then Cash for Invoices Limited can buy the supplier's invoice. It will also agree with the business to collect payment for the invoice, and sometimes at a date that is after the due date for the invoice so giving the business longer to pay. This helps businesses in need of time.
What is an invoice?
Invoices are a form of trade receivable, i.e., they are an asset on a company's balance sheet representing money to be received by that company at some future date - at the time the debtor pays the invoice. At that time, the debtor (payer of the invoice) will no longer appear on the company's balance sheet and instead it will be replaced by an equal amount of cash (which is also an asset). There is no net increase or decrease in assets, merely conversion from one to another.
If that debtor does not pay, then the asset will be written off as a bad debt (a cost in the profit & loss account) and assets will then reduce (no cash came in). Granting time (credit) to buyers to pay for their purchases is therefore an example of credit risk for the company giving time.
If later - perhaps through credit collection procedures - the debtor pays the invoice, then the bad debt is added to the p&l as a profit (income) and cash increased by the amount received. The assets increase and are offset by an increase in profit (equity on the balance sheet). All is well again.
Selling an invoice to Cash for Invoices Limited
Before the debtor defaults, the company can sell the invoice to a company such as Cash for Invoices Limited that will offer to buy just one invoice when the company wants to sell. There is no commitment for the company to sell, and no commitment for Cash for Invoices Limited to buy. The company wants to exchange an invoice for cash - perhaps it needs the cash sooner than the invoice payment date.
Cash for Invoices Limited will make an offer after conducting due diligence on the selling company and on the debtor especially. The debtor is a key concern for Cash for Invoices Limited because if there is a subsequent default then Cash for Invoices Limited will not require the seller to buyback the invoice. The sale is therefore non-recourse and Cash for Invoices Limited has to suffer the consequences of a default. It will commence steps to recover the debt. These can include issuing letters for payment, appointing a solicitor, making a court claim, or making a claim under a credit insurance policy.
Retention to mitigate credit risk
To mitigate the potential costs of trying to recover payment on an invoice that Cash for Invoices Limited purchased but which goes into default, Cash for Invoices Limited will retain up to 10% of the value of that invoice from the purchase price. If there is no default (the debtor pays the invoice on time and in full) then Cash for Invoices Limited will pay the retention to the seller when the debtor pays the invoice.
Features of single invoice finance offered by Cash for Invoices Limited
In addition to being non-recourse, Cash for Invoices Limited does not require a commitment from the seller to sell all its invoices, nor will Cash for Invoices Limited charge an arrangement fee for a purchase. Cash for Invoices Limited will not ask for ongoing fees because there is no facility between the seller and Cash for Invoices Limited. The transaction is entered into whenever the company needs cash and Cash for Invoices Limited agrees to purchase the single invoice or multiple invoices. Compared to bank factoring facilities, Cash for Invoices Limited's single invoice finance service is far more simple and has no tie-ins and far fewer fees, just one.
Supplier invoice finance offered by Cash for Invoices Limited
Cash for Invoices Limited also helps companies who need more time. Why do they need more time? Because suppliers who have sent them an invoices are demanding payment but the company needs more time to pay.
In such situations, Cash for Invoices Limited can offer to buy the supplier single invoice for cash. That cash is paid to the supplier not to the company Cash for Invoices Limited is helping. Having got the supplier off the company's back, Cash for Invoices Limited allows the company the extra time it needs to get cash and then to use that cash to pay Cash for Invoices Limited for the supplier invoice Cash for Invoices Limited purchased.
Cash for Invoices Limited's single invoice finance service therefore helps companies (sole traders and SMEs) who either need cash or who need more time.
To find out more about Cash for Invoices Limited's single invoice finance service contact Cash for Invoices Limited.