From speaking to our contacts in the sector, we understand that food and drink businesses are some of the worst affected by slow payment, making cash-flow a constant headache. The excitement of winning a new supply contract can soon subside as you work out how you are going to fund the increased outlay whilst being forced into payment terms of 30-90 days (or in some cases even as long as 180). Supermarkets and other large retailers have so much buying power that they dictate the terms and if you want to sell to them you can lump it or leave it.
The way to get the cash flowing through your business quicker is through Invoice Finance. This is a product whereby your invoices are loaded onto a system and you can then draw down a % of the invoice value to use in your business. You can then use this money to pay staff/ suppliers/ anybody else who needs to be paid, and once your customer pays the invoice, the difference (less fees) is paid to you.
Different types of facility:
Confidential Invoice Discounting – as the name suggests, your customers don’t know you are using it. This is only available above a certain size and you have to demonstrate that you can manage your credit control.
Factoring – invoices are assigned to the lender who take over credit control
Hybrid – including CHOCCS (Client Handles Own Credit Control) where invoices are assigned but you keep all of the client interaction.
When setting up an invoice finance facility there are numerous commercial points to consider, including Advance (LTV), Discount Rate, Service Fee, Arrangement Fee, Funding Period, Contact Length & Bad Debt Protection. Using a broker will help you to negotiate favourable terms but also ensure that your new facility matches up with your requirements now and your growth plans for the future.
If you need help setting up a new invoice finance facility or you are struggling with your existing provider, email toby@startpointfinance.co.uk for a no obligation discussion on how we could help. Start Point Finance have helped numerous businesses in Bristol, Devon, and across the country access invoice finance from high street banks and alternative lenders.