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4 scenarios where invoice finance is best for your business

It is a myth that invoice finance is primarily for companies that are in financial trouble. We’re sharing a few scenarios where invoice finance makes sense, especially where circumstances may be out of management’s control.

Succession planning and management buyouts

Changing ownership requires finance and cash flow when it comes time to exit the business through succession plans or management buyouts

Often the issue is, participating parties may not have the necessary equity or capital to fund the plan. This is especially true if the current owner has used personal assets to guarantee finance arrangements, and the new buyer does not have similar assets or capital. 

In this scenario, invoice finance gives the new owners better cash flow without requiring them to offer personal assets as security. A three-way arrangement with Lock Finance can be structured to help the buyout over an agreed timeframe. 

The cash flow facility grows with the growth of invoices issues. The flexibility allows the new owners to make changes, modernise business processes and go after new sectors while having the cash flow to meet the acquisition target. 

Ensuring equality in business partnerships

Many businesses result from someone with a good idea partnering with someone with the capital to fund the business to sustainability. The business may sometimes require further cash injection from the partners to meet cash requirements. If both partners are not able to meet the cash requirements, often the burden falls on one partner.

In this scenario, provided business-to-business invoicing is growing, invoice finance provides a simple mechanism to meet cash flow requirements. The business pays for the finance cost, so there is no change to the partnership arrangement. 

Loss of a big customer

Losing a large customer to a natural disaster, business rationalisation, insolvency, or competition can disrupt cash flow. If the customer contributes significantly to cash flow, the impact can be distracting when the focus needs to be on stabilising cash flow. In this scenario, invoice finance provides immediate cash flow, giving management the space and time to change plans.

When you need to separate personal assets

Securing business finance against personal assets is common but problematic if your personal circumstances change. In a separation or divorce scenario, you lose half of your assets.

That can have a big impact on your capacity to borrow. Invoice finance treats your invoices as assets, so you don’t need to use personal property as security. With some good working capital planning, it is possible to reduce disruption to the business.

How much does Invoice Finance cost?

Our fees are influenced by a number of factors. 

  • What sector you are in
  • Companies trading history
  • the volume of your invoices and invoice value, and 
  • the amount of time a customer takes to pay.

As a result, the solution we provide is tailored to your business and is co-designed with your finance team to give you the best-working capital solution. It takes into account all your funding requirements, and we have a number of finance partners that can help with asset finance.

In general, our fees are comparable with business bank overdraft fees, with one key difference - your funding is proportional to the value of invoices you issue. This is particularly useful for businesses that are growing.