How Finance Makes the SME World Go Round

Updated: Dec 3, 2019

According to a survey of a thousand UK SMEs by MarketInvoice, over the last year, 26% used invoice financing as their main form of funding, 22% used asset finance and 10% used a traditional loan. Fortunately, for UK SMEs, GSM are able to arrange all of three of these forms of funding and tailor them to your business needs, with flexibility over the repayment period and schedule.

MarketInvoice was the UK’s first online marketplace, that facilitated companies with outstanding invoices to selectively sell them in order to raise working capital. A good solution for UK SME’s who have poor paying customers and large invoices.

Invoice Finance: Invoice Financing is a method for businesses to borrow money against outstanding invoices, in doing so the lender will pay the invoice on the customers behalf giving them access to working capital. In doing so, the business can use the cashflow to pay staff salaries and suppliers or reinvest in operations and growth earlier then they could if they had to wait to be paid. The business will have to pay a percentage of the invoice amount to the lender as a fee for borrowing the money.

This is a perfect solution for businesses that have long lead times or lengthy payment terms. For example, let’s say you are a lorry manufacturer, and your lead time for a lorry is 3 months. You will most likely charge your client a deposit, let’s say 10%, but the build cost of the lorry is 50% of the final sale price. So, in order to sell the lorry, you need to build the lorry, in order to build the lorry, you need funding for the build. Some companies, will have healthy enough cashflow that they can self-fund, others may not. In which case, without borrowing they can’t tap into the 50% profit proceeds from the build.

Let’s now consider another situation, again you are a lorry builder, with a 3-month lead. An international haulage company comes to you wanting to replace their entire fleet of 100 lorries. You definitely will not have the cashflow for this, and so have no means to fund the build, as such you miss out on the life changing contract. This would be where invoice finance would be a perfect solution.

After signing the contract with your client you provide a lender with the invoice, such as Market Invoice, who then advance the business the amount you require. Taking this advance, you invest in the stock you need to meet the order, and after 3 months you have 100 lorries ready to be delivered to the haulage company. On receipt of the lorries, the haulage firm pays the invoice for their lorries, which is then used to settle the debt with the lender. How the lender is paid depends on how the finance is structured mainly whether you have taken out Invoice Factoring or Invoice Discounting.

finance contract

Invoice Factoring: You sell outstanding invoices to a lender, the lender then collects the outstanding invoice from your client. As such this may highlight to your client the use of this arrangement and it may not reflect the image of how you want to be perceived.

Invoice Discounting: With discounting, you, as the business collect the payment from the customer and as such, they remain unaware of your arrangement.