Common Invoice Factoring Solutions for Insolvent Businesses with Cashflow Problems

A company is insolvent when it is unable to pay its debts as they fall due or its liabilities outweigh the total value of assets. When a company is cash flow insolvent, its outgoings exceed its incomings or in other words, the company is not collecting money owed as fast as it is paying it out.

Cash flow problems can frequently come out of the blue, especially when directors are bogged down in the day-to-day running of the business and have failed to keep an eye on the company’s expenses. In this scenario, a tax bill from HMRC could be enough to push the business into insolvency. Equally, cash flow problems can develop over a period of time with directors of a profitable company ignoring the warning signs of insolvency.

One of the most common causes of cash flow problems is ineffective debt collection. Cash is the lifeblood of a business and it’s essential that customers pay on time to ensure a steady and predictable flow of cash runs through the business to keep it functioning. However, the reality is that a company’s overdependence on one or two large customers, that consistently make late payments or simply avoid paying the business entirely, can spell disaster. So what are the options?

How can Invoice Factoring Help?

Businesses with customers who take too long to pay should consider invoice factoring as an option.  Factoring companies buy unpaid invoices at a discount from cash-strapped businesses and make a profit when the invoice is paid in full. Factoring companies can advance up to 90% of the invoice to struggling businesses, which allows cash to enter the business sometimes as fast as 24 hours of raising the invoice – much faster than waiting for customers to pay. With the readily available cash, directors can meet operational requirements and restore business stability

When a business has cash flow issues, shortening the payment cycle is key for business survival. Invoice factoring keeps the business moving and is well suited to a business that has a small number of high-value invoices as service fees are associated with each invoice that the company sells on to a factoring company.

Taking the Stress out of Unpaid Invoices

A recent survey found that small business owners across the country spent 10% of their day chasing payments. By selling the company’s unpaid invoices to a factoring company, money comes into the business sooner and directors can redirect their energies from chasing outstanding invoices to other aspects of the business where their expertise is most needed.

Common Invoice Factoring Solutions

Businesses that have been turned away by the banks or other traditional lenders should consider invoice factoring, which is secured against the company’s accounts receivable rather than its credit history. The purchase of the financial asset or the ‘receivable’ poses much less of a risk for financiers than a traditional loan. By using factoring, the cash-strapped business can get a vital cash injection almost immediately without incurring more debts. It is also relatively inexpensive compared with business loans or bank overdrafts.

If your company is facing cash-flow pressure and you would like to know more about invoice factoring, please call Mike on 07912344394 or email for free and confidential advice from one of our professional advisers.

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