Managing working capital with receivables finance

In a recent blog post, we discussed ‘overdraft’ as a solution to adequately and effectively manage a business’ working capital. Another solution is ‘receivables finance’, which enables a supplier to collect invoices from their customers sooner than the agreed-upon terms.

A receivables finance arrangement does not appear on your balance sheet, which is helpful if you have loans with other lenders that have covenants restricting the leveraging of your balance sheet. Taking out another type of loan may induce a breach of those covenants.

This arrangement also offers flexibility for the supplier, who can then decide which invoices they run through the facility and which ones they don’t. This is helpful as there will undoubtedly be times you require the facility, and other times you do not.

For those who have never used this type of facility before, there may be an adjustment period where you need to get accustomed to the platform’s lender’s use to facilitate the financing of invoices. Furthermore, not all invoices can be financed and there will typically be policies around the concentration of a particular invoice, the payment terms, and progressive payments. Some variations of this factoring are fully disclosed to your customers.

When the receivables finance facilities are harnessed correctly, they can assist businesses in overcoming times of strained cash flow and grow beyond the director’s ability to provide security. However, if it’s not the right solution, it can become an administrative burden to you and your customers and may require altering how you invoice your customers.

It is always important to seek clarification about your business’ ability to put these facilities in place. If you would like to learn more, chat with Duo today.