Invoice financing provides flexible funding based completely on your outgoing invoices. As your business sends out invoices to your customers, your lender will cover the amount correlating to the total invoices owed.
As such, invoice financing provides an excellent solution for growing businesses, SMEs and any company with cashflow problems. Lenders will offer you a percentage of the unpaid invoice when it is initially issued to your client and will give you the balance of the invoice when it is paid, minus their own internal fees plus interest.
Invoice financing – two types
There are two distinct types of invoice financing.
- Factoring describes the situation where you give your invoice finance provider complete control of your debtor book and credit control, whereas
- Invoice discounting occurs where you raise money and loans against the invoices, but maintain control of the relationship with your clients and are responsible for chasing up customers for payment due.
Who uses invoice financing and how does it help businesses?
A huge number of businesses use invoice financing, and it is one of the most popular forms of financing for growing businesses, especially in the UK. Because invoice financing is based on your debtor book, securing finance is extremely easy and accessible to firms. Equally, by only borrowing money directly correlating to planned income sources, businesses know that they are very unlikely to get into debt with this type of financing solution.
Unlock capital quickly
Growth can quickly be achieved through invoice financing, as it allows companies to unlock capital as soon as they issue invoices. This means instead of having to wait for the invoice to be paid, which may not be easily timetabled, invoice financing will allow you to bridge that gap, offering you funds with which to develop growth and invest in assets.
No long-term contracts
The beauty of invoice financing is that there is no set limit on how frequently you use it, and there are no long-term contracts with high-interest repayments – companies can raise as much money as they need against existing invoices, and can choose to repeat the process in the future if they so need.
Industries that are most suited to Invoice finance:
• Recruitment business
• Subcontractor business
• Distribution + Wholesale
Invoice financing – where to find out more
At Tower Leasing, we pride ourselves on offering flexible leasing and finance solutions to all businesses, creating tailored solutions to suit all of your business needs. For more information, please contact us.
Anyone who has started their own company will tell you that managing cash flow for a small business can be difficult. It is imperative that you have a tight grip on your finances and ensure that your cash flow is managed effectively, to really make your money work. Our experts have suggested a few handy tips for managing small business cash flow, allowing you to keep your finances in check while growing and developing your business.
1. Keep up-to-date books
Your cash flow can only be as good as your reporting and accounting, especially for small businesses where there may be smaller contingency margins. As such, you need to ensure that your accounts and finances are updated accurately on a regular basis. By ensuring that you can always view an accurate state of your finances, you have more information with which to direct your cash flow.
2. Don’t be too lenient with your clients
Unpaid invoices will have a disastrous effect on your cash flow, so ensure that you are not too soft with your clients, while remaining fair. If you find that invoices are often left unpaid, or paid late, then it may be worth reassessing your invoicing strategy and find something that works better for you. Equally, don’t be afraid to tell your clients you will pursue formal action if they continuously leave their bills unpaid. Solutions such as invoice finance are available to help manage and mitigate late payment issues.
3. Ensure business and personal finances are separate
Many small businesses are linked to their founder and owner, who is likely to have close connections with the business finances. Despite this, it is essential that all personal and business finances are kept separate from each other; mixing these accounts will lead to inaccurate information and may be questioned by HMRC when your tax returns are submitted. Separating these accounts will also ensure that you are in a good position to work out how much to pay yourself (and your employees!), and establish how much additional money you have to reinvest in the business helping it to grow.
4. Build up your cash reserves
Having a safety net of cash could help to save your business if trouble arises. It provides extra security for any unexpected events, as well as allowing the confidence for growth and taking risks, knowing that you can mitigate any consequences. While it is not always possible to create large cash reserves, especially for smaller businesses, having a small amount set aside will give you the flexibility of investing while also gaining the best rates of finance.
Managing small business cash flow – where to find out more
We can help provide funding for purchases and business growth so you can protect your cashflow – please get in touch if you’d like to discuss this with us.
Find out more about our services on our invoice finance page.
Image: £1 coin images by Images_of_Money licensed under Creative commons 4
Sustaining the growth of your business can be a risky affair and there are a number of pitfalls for the unwary. The business world is challenging and competitive and financing growth with little working capital can be extremely challenging. Six of the common mistakes of business expansion made by companies are discussed below.
1. Always listen to customer feedback
It’s recognised that up to 42% of startups fail due to low market demand for their products or services. Avoiding a mistake like this means listening to customers and achieving real understanding of your marketplace. Before making any firm business expansion plans or incurring any debt, take time to do your research and ensure demand meets your revenue targets.
2. Taking on too many employees at an early stage
Small businesses always need to keep scalability in mind as it affects every aspect of operations. Taking on too many employees at an early stage of your business can really impact on profitability. Although workloads can be heavy for small business proprietors and their key team, think carefully about whether you will be able to maintain new employees in work at all time and the costs the business will incur as a result of their employment.
You could always take on contract staff or freelancers to cover really busy periods and this gives you far more flexibility to scale up and down, without placing too much financial pressure on the business.
3. Step back and take time to reflect
Many small business owners spend so much of their time directing and managing the operations that they never think about ways it could be improved. You should regularly make the time to review all your business processes in order to make the most of new technologies and resources as this can boost productivity and workplace effectiveness.
4. Devise a marketing plan
Sales and new leads don’t appear out of thin air, so keeping an active marketing plan in place for your business will help you grow exponentially. Many large corporations set aside 40% of total revenues for their marketing budget, and although small business owners should not need to make this much expenditure it is an investment that’s needed in order to grow the business. It’s best not to cut corners with marketing efforts either, where possible engage professionals to carry out the work for you, as this is not the sort of task that can be left to general admin teams.
5. Locking up working capital
Look at all available finance options prior to making any decision to use working capital for purchases. Once you’ve utilised capital in the business to finance equipment or products, you won’t be able to access it. Leasing and hire purchase agreements are often more suitable for financing larger pieces of equipment and you benefit because you can include these charges in your monthly expenditure accounts.
6. Minimise risks as much as possible when you fuel business growth
Research and knowledge are key tools before going ahead with any business expansion. Take the time to learn as much as possible about your proposal before making firm decisions, this is even more important if you are planning an overseas expansion as there are so many differences in culture, employment laws and legal requirements.
Common mistakes of business expansion – where to find out more
We can help obtain funding for your business expansion – please get in touch if you’d like to discuss this with us.
Find out more about our services on our business finance solutions page.
Image: Two Person in Formal Attire Doing Shakehands – Credit to http://homedust.com/ by Homedust licensed under Creative commons 4
If you’re a company who plans to develop new services, processes or products, you could claim corporate tax relief on your research and development (R&D) projects. In this article, we explain how understanding tax relief for research & development projects can help reduce costs.
What counts as research and development?
What counts as R&D is fairly wide. You have to be working within around developments across your industry for your R&D project, and looking to develop a new product, process or service. Alternatively, you could also be looking to modify an existing product, process or service that doesn’t work or isn’t fit for purpose now.
Your project needs to:
- Be looking to advance an area of your industry through science or technology
- Needs to undertake research, because you know there’s no certainty it will work. You can claim R&D relief on unsuccessful projects as well.
- Has tried to overcome the issue that there’s no certainty the project will work
- Could not easily be solved by a professional in the field e.g. a consultant, engineer etc.
The advance you’re looking for needs to be for the whole field you work in, not just for your own business. You can also claim for work done on behalf of a client, not just for your own direct projects.
What can I claim?
You can claim for staff expenditure; including salaries, employers’ NIC and pension contributions, and that includes payments to subcontractors and freelancers. Claims can also be made for expenditure such as heat, light and power that was used during the R&D process. You can claim for some types of software too, if they were purchased for the R&D project. The rate of corporate tax relief is different depending on the size of business you have.
SME R&D Relief
If you’re a small to medium-sized business you can deduct 130% of the qualifying costs from your annual profit, on top of your usual 100% reduction. If you’re making a loss, then you can claim tax credits of up to 14.5% of the loss.
For large companies or SMEs linked with a large company partnership
If you’re a large company or an SME in partnership with a large company (which rules you out of SME R&D relief), you can claim a tax credit for 12% of all your qualifying spend. Essentially you could be due a sizeable chunk of tax relief if you’re undertaking research and development in your industry, and if you’re not sure if this applies, it’s wise to get some advice on whether you can make a claim.
Understanding tax relief for research and development projects – where to find out more
We can help obtain funding for your research and development project – please get in touch if you’d like to discuss this with us.
Find out more about our services on our business finance solutions page.
Numbers And Finance by kenteegardin licensed under Creative commons 5
Figures released by the Finance & Leasing Association (FLA) today shows that asset finance new business (primarily leasing and hire purchase) grew by 7% in April, compared with the same month in 2017.
Business in the plant and machinery finance and business equipment finance sectors was up by 13% to £574m and by 18% to £206m respectively, while commercial vehicle finance new business increased by 13% over the same period. This is welcome news for the industry, which recorded a 9% fall year-on-year in March.
Asset finance recovery broad-based
Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The recovery in asset finance new business in April was broad-based. The manufacturing, agricultural and construction equipment finance sectors each reported strong growth, with new business up by 61%, 35% and 27% respectively, compared with April 2017.”
The total asset finance of the FLA in April was £2.73bn, a 7% increase on the same point last year. In the three months to April there remains a 1% decline over the same period in 2017. There has also been a 20% drop in operating leasing product, down to £476m.
Broker-introduced finance rose by 24% year-on-year to £525m. All channels of finance showed improvement, with direct finance and sales finance increasing by 3% and 14% respectively.
In 2017, FLA members provided £128bn of new finance to UK businesses and households. Last year FLA members financed more than a third of UK investment in machinery, equipment and purchased software.
April’s figures show an overall significant improvement from March, when asset finance recorded a 5% year-on-year fall. The current figures may signify promising signs of a UK economy recovering from a slump, though this trend would need to continue and improve into the next quarter for this assertion to be justified.
Source: Leasing Life
Financing your business and buying all the needed equipment might be an uphill task especially if you are just starting out. Leasing equipment can boost your business and help you acquire essential but expensive equipment without the full costs. Here are some other benefits of leasing equipment for your business:
The lessee gains tax advantage by being permitted to claim the payment associated with the leased equipment as part of the business expense. This lowers the company’s taxable income. Accounting for the full payment of the leased equipment is also easier on the company accounting since the financial statements can be found on the general ledger.
By leasing equipment, the business can finance 100% of its total equipment costs. This allows your company to use capital to invest in other areas of the business. By using alternative investments, the company can generate extra income.
Upgrading outdated equipment
The business world today is changing rapidly because of the rate at which innovation is taking place. New machines are developed all the time to cater for the new demands in the market. As a business owner, it might be difficult and expensive to upgrade outdated machines with your strained capital. Leasing services help your business to upgrade outdated equipment without purchasing new ones. Leasing equipment can also help you to test new equipment in the market.
Makes budgeting easy
Leasing allows business owners to acquire equipment instantly without necessarily spending a lot of money. In most cases, a lease is based on monthly expenses which do not change. This helps business owners to forecast expenses and budget well. Some of the benefits you will enjoy by leasing include a tailored finance plan, instead of all up front, allowing you to spread costs over monthly payments. This is good for customer cash flow. Customers also enjoy the tax benefits of buying software, depreciation and inflation benefits.
Benefits of leasing equipment – where to find out more
If you’re thinking of getting new equipment for your business, please get in touch with us to find out more about the benefits of leasing equipment.
You can also read our article, “Lease vs Buy,” which shows a comparison of both options when acquiring equipment.
Image courtesy of www.seniorliving.org