Cash for Invoices Limited can keep small businesses away from financial distress by buying one or more of their trade invoices for cash.
Where small businesses are under pressure to pay their suppliers, Cash for Invoices Limited can buy the supplier's invoice and extend the small business's normal payment date for that invoice.
New research from Begbies Traynor, an independent business recovery practice, shows that more than 275,000 companies were showing signs of “significant” financial distress at the close of 2016, representing the thirteenth consecutive quarter that corporate stress has risen on a year on year basis.
According to Begbies Traynor’s research for the last quarter of 2016, more than 275,000 UK businesses were experiencing ‘Significant’ financial distress at the end of 2016; an increase of 3% compared to the same period last year.
Of the companies experiencing financial distress during the last quarter of 2016, 91% were SMEs, indicating the scale of the problems faced by the UK’s smallest businesses.
Meanwhile, nearly a quarter (23%) of the country’s struggling businesses were in London, where almost 65,000 companies finished the year in a state of ‘Significant’ financial distress; an increase of 5% on the same period in 2015.
This rising distress comes at a time when the number of UK company incorporations is growing substantially, with more than 685,000 start-ups joining the economy during 2016 alone – the highest level since the start of the financial crisis in 2007. However, Begbies Traynor highlights that many of these start-ups are short lived ‘lifestyle’ businesses often forced upon people by changing circumstances, such as the loss of paid employment. For example, of the approximately.470,000 companies incorporated during 2011, almost 57% have since been dissolved, struck off or have entered formal insolvency procedures, and another 7.5% are not even trading.
Julie Palmer, Partner at Begbies Traynor, says:
“With the World Bank revising down its growth forecasts for the UK, alongside reports that the UK’s trade deficit widened to a worse-than-expected £12.2 billion in November , our data shows that levels of financial distress continue to rise across the country, most of all within the UK’s important SME community, which is widely regarded as the lifeblood of the economy.
“The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept. Although record numbers of new start-ups continue to join the economy each year, a large proportion don’t stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.”
Ric Traynor, Executive Chairman of Begbies Traynor, added:
“Despite finishing the year in a state of heightened financial stress, it is too early to say that this is reflective of an underlying problem that is likely to continue or negatively impact 2017, as numerous macro indicators suggest that the New Year has got off to a reasonable start.
“EU exit negotiations and US trade policy could be major factors affecting business this year either for better or worse whilst rising inflation and fluctuating exchange rates are likely to have a negative impact. Either way 2017 could well be a defining year for UK business.”
Single invoice finance from Cash for Invoices Limited can provide an excellent solution to filling temporary cash crises. No security is needed, there is no on-going commitment to selling further invoices and no ongoing fees are charged. As long as the credit status of the debtor is acceptable, the company selling the invoice can collect up to 95% of the value of the invoice within a few days of contact with Cash for Invoices Limited. Find out for free and without obligation how you can get cash quick and easily. Click here.
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.