Company Financing Solutions
Is your company struggling to pay its bills?
Even profitable companies can run into cash flow issues. If your business needs operating capital to pay staff and creditors, there are options available to you.
The old expression that “cash is king” couldn’t be more true in business. No matter how profitable your business is in the long term, without sufficient cash flow it can be set back by the possibility of insolvency and compulsory liquidation.
Every business depends on cash flow, often for different reasons. Some businesses need to raise operating capital in order to repay creditors, while others need cash for investment that allows for the long-term growth of the business.
Companies in need of cash have a variety of options. They can raise short-term cash to fix cash flow issues in the form of invoice discounting, take out a business loan, or reduce their outgoing payments using business debt consolidation.
In this guide, we’ll explore the company finance solutions available to your business to help you make the right choice. Read on to learn about the best options available to your business to repay creditors and staff or fuel growth and expansion.
Raising capital using business loans and funding
If your company is struggling to pay its creditors due to insufficient cash flow, sometimes you may face an equally difficult struggle to find a lender. The riskier your company is, the greater the chance that you will face high interest rates from creditors.
Many viable businesses face difficulties in fuelling growth due to limited cash flow and low turnover. If your company is commercially viable but caught in a bad spot due to financial issues, you may be unable to find a reputable business lender.
Speeding up cash flow using invoice factoring and discounting
If your business has a history of timely payments from clients and customers, but is currently paralysed by poor cash flow, invoice factoring and discounting could be a simple but effective way for you to raise short-term operational capital.
Invoice factoring involves your business selling unpaid invoices from customers and clients to a third party. Using invoice factoring, your business can convert its unpaid invoices into cash to pay staff and creditors or expand your customer base. In simple terms, factoring allows your business to borrow up to 70-85% of its total invoice balance, using the invoices as security. The responsibility of collecting the invoice payments is transferred to the lender, letting your business focus on growth.
An alternative to invoice factoring is invoice discounting. If your clients have a good history of making timely invoice payments, you can use these invoices as security to take out a loan for between 85% and 90% of the invoice’s total value. Invoice discounting is completely confidential. Although you will be paid by a lender and repay this lender via your company’s standard invoice payments, none of your company’s clients will be aware that you are borrowing against their invoices.
Discounting has been used by many of today’s most successful companies during the start-up phase to raise short-term capital to fuel growth. Like factoring, it gives your business an opportunity to focus on growth without such concern about cash flow. The biggest difference between invoice discounting and factoring is that discounting keeps your business fully in control of your invoices and payments. This makes it an excellent financing option for businesses with good collections systems.
Other company finance solutions for your business
Loans and invoice factoring/discounting aren’t the only way to raise capital for your business.
Alternative options for raising cash for your company include lowering its outgoing payments through debt consolidation. Business debt consolidation can reduce your expenses by combining multiple high-interest loans into a single monthly payment.
Another frequently used financing option is asset financing. Asset finance gives your business the ability to pay for essential assets via monthly payments. This improves cash flow by helping your business avoid a single, often large, lump sum payment.
Asset financing can take a variety of forms. These include leasing, during which your business will pay for assets – for example, important machinery or vehicles – for the specific time period over which they are needed.
Hire purchase is another form of asset financing. Like leasing, hire purchase allows your business to accurately forecast cash flow and avoid spending too much money in the short term. Your business will own the assets at the end of the payment plan.
As interest rates are historically low, asset financing is a very popular choice for new or rapidly growing businesses that need to purchase equipment and other assets for continued expansion.
Finally, your company may be able to raise money through a grant. A wide range of business grants are available in the UK, although finding a grant that your company is eligible for can often be difficult without assistance from a professional who has a thorough knowledge of the system.