Can you better fund your business?

Category: Property & Construction - Posted On: Feb 21 2020


‘Cash is king’ is an age-old saying that has always and will always be true – especially for small and medium-sized enterprises (SMEs).

SMEs in the construction sector can often find it difficult to secure funding as traditional lenders are unwilling to take on such a risk with upfront labour and material costs often needed to be paid before a job is completed.

Research shows that after bank overdrafts, the largest source of funding for owner-managed businesses are personal savings, loans from friends and family, or credit cards.

With banks often unwilling to fund cashflow, and credit cards being an expensive source of finance, invoice finance is an attractive option to consider.

There are two types of invoice finance products: factoring and invoice discounting. The biggest difference between them being who collects the customer payments although each allows you to release a large proportion of an invoice’s value within 24 hours of its issue. Once your customer has made their payment, the remaining balance is paid to you, minus any fees.

For example, if you have £100,000 in outstanding invoices, and the finance company gives you 90% of this value, you can immediately unlock £90,000 of cash through the invoice financing facility. Once your customers have paid the invoice financing company in full, they’ll then pay you the remaining balance minus their fees.

If you choose factoring, you get a dedicated credit control service, allowing you to focus your time and energy on your business. To safeguard your business further, you can choose to add bad debt protection.

With an improvement in cashflow you’ll be in a better position to realise new opportunities, take on new orders or expand and invest in your business and if ‘Cash is king’, invoice finance may just be the ace up your sleeve.

Our EQ Property & Construction team are experienced in assisting clients with preparing cashflow forecasts, financial projections and can act as an intermediary with financiers.

If you would like to discuss further how we can support your construction business needs, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.