How To Tackle Long Payment Cycles

This article was first published on Stories by Populous World on Medium

SMEs struggle to play catch up with cash flow due to the long payment cycles with customers. The 3-month standard payment terms can almost cripple a company, and with a major constraint being that banks refuse to lend and offer finance to SMEs with poor or no credit history, alternative funding options are sought after.

After several attempts of refused lending from traditional financial institutions, SMEs are in danger of falling into a downward spiral and may have to look at unimaginable options such as selling the majority of company shares just to keep the business growing. The financing gap is even larger when micro and informal enterprises are taken into account. Overall, approximately 70% of all micro, small and medium-sized enterprises (MSMEs) in emerging markets lack access to credit.

Invoice Financing as an alternative funding solution

Invoice financing uses invoices as a way for businesses to unlock cash tied up in invoices and therefore speeding up cash flow. This is done by selling invoices to a third party who will advance some of the funds the invoice is worth in advance.

One advantage of invoice financing is that there is no additional debt incurred when using the service. While there is a fixed service fee, the interest is only charged on advances that remain unfulfilled by customers. Therefore each time a customer pays their bill, the debt is repaid. Because of this, the amount you can borrow grows along with your business.

Invoice finance companies typically offer their services to companies with an annual turnover of at least £50,000, although some will consider start-ups and smaller businesses. A business can typically borrow up to 90% of the value of their invoices, depending on the financing provider.

Several different types of providers offer invoice factoring or invoice discounting such as Populous World, which auctions ...

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Stories by Populous World on Medium

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