Single invoice finance, such as that offered by Cash for Invoices Limited, could have provided essential cash needed by businesses with bad debtors.
Research cited in CityAM showed an alarming state of affairs in recovering money owed to small businesses by debtors.
The research revealed several reasons cited by small businesses as to why they wrote off billions of pounds collectively owed by debtors. Top of the list was insolvency of the debtor followed by doubt that the debtor had funds to pay.
Equal 3, 4, and 5th place reasons cited were lack of time to chase, risk of damaging the relationship, and no funds to pursue the debtor. Under 5% or respondents said they did not know how to claim.
These are all concerning reasons for SMEs writing off collectively £6 billion of debts in 2015/16 according to Direct Line. The average write off was over £31,000 and a staggering 10% of companies each wrote off over £100,000 owed by bad debtors.
These alarming losses will have meant the company had a shortage of cash flow needed for running its business, such as: paying overheads, managing working capital, growth, or research and development. The shortages might have been made up by borrowing but that solution will have led to further costs (of interest) and reduced bank funding capacity.
Cash for Invoices Limited buys single invoices for cash. It will pay up to 97.5% of the invoice amount less a 10% retention that is handed to the company provided its debtor pays the invoice. Cash for Invoices Limited's fee is therefore just £2.50 per £100 of invoice for a 30-day invoice. A small price to pay to get cash into the business. If the debtor were to default then Cash for Invoices Limited will not sell the invoice back.
Unlike many bank and other factoring companies, a multitude of fees are not charged to benefit from Cash for Invoices Limited single invoice service. No arrangement fee for example and no service charges, exit charges. Nor are there annual renewal charges because no facility is set up with the selling company. There is no commitment for the small business to sell any invoices to Cash for Invoices Limited.
A significant advantage of the single invoice finance service from Cash for Invoices Limited is that it requires no security off the selling company: no debenture, no personal guarantees, or other charges. That is a substantial improvement over many bank and other factoring companies' factoring facilities.
If a small business answers yes to either of the following questions, then it would benefit from Cash for Invoices Limited's single invoice finance service:
1 Do you occasionally need more time to pay your supplier invoices?
2 Would you like invoices you send to customers to be paid sooner?
Cash for Invoices Limited's single invoice finance service outperforms conventional factoring because:
a) it does not require security from the selling business (such as a debenture or guarantee)
b) just one invoice can be sold
c) there is no commitment to sell any invoices to Cash for Invoices Limited, and certainly not the business's whole sales ledger
d) very small value invoices (from £500) may be sold, ideal for micro-businesses
e) one fee only is charged, plus a refundable retention. Unlike similar service providers, Cash for Invoices Limited does not charge: arrangement, servicing, renewal, or exit fees. The current fee is just 2.5% of the invoice. The refundable retention is 10% of the invoice. This is paid to the business if its debtor pays Cash for Invoices Limited in full and on time.
f) For supplier invoices, the payment date of the supplier's invoice bought by Cash for Invoices might be extended, giving the business up to 60 days extra time to pay Cash for Invoices Limited.
Contact Cash for Invoices Limited to find out how it's single invoice finance service could help your small business cash flow and avoid bad debtors.
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.