How to master your cashflow with invoice financing

February 5, 2024

The experience of managing the cashflow of a small business is not unlike the experience of being on a boat in a storm – navigating unpredictable waves and currents and wondering whether the next unpaid invoice could be the one to capsize your plans. 

Among the most common causes of unease is the enduring challenge of dealing with unpaid invoices. Lengthy payment terms and elusive clients put a strain on your finances and can disrupt your mental wellbeing, further hindering your business's potential for growth.

In this blog, we explore how invoice financing can act as a lifeboat, helping you stay calm and maintain a course towards your goals and ambitions.

The challenge of unpaid invoices

Unpaid invoices are more than just an inconvenience; they're a significant barrier to growth for many small businesses.

When payments are delayed, it's not just the strain of financing daily operations that weighs heavily on business owners – it's the inability to invest in value-adding projects and initiatives, such as taking on larger orders, hiring essential staff, or even covering utility bills.

Understanding invoice financing

Invoice financing is an innovative financial solution that’s designed to unblock the revenue pipelines by allowing businesses to sell their outstanding invoices to a third-party financier.

Following approval, a high percentage of the invoice’s value is paid directly into your business account as quickly as 48 hours later. Understandably, this can be a game-changer for small businesses facing cashflow issues.

However, this is not the only benefit the solution provides. Because you have sold the invoice to the financier, there is zero debt and zero threat to any of your business assets. 

If the remaining part of the invoice troubles you, you can rest assured knowing that it is only kept in reserve to cover the likes of potential offsets or late payment charges. Once the invoice is paid to the financier, the outstanding amount is paid into your business account minus the financier's fee.

Essentially, invoice financing allows you to unlock the value of your invoices within days rather than waiting up to four months.

Benefits of invoice financing for small business

The most immediate benefit of invoice financing is the injection of cash into your business.

This rapidly acquired liquidity can be a lifeline for operations and growth. Moreover, unlike a loan facility, invoice financing offers flexibility and control, allowing you to finance specific invoices as needed instead of relying on a random lump sum to see you through.

For many small businesses, it’s not just the quick access to risk-free capital that eases the pressure; it's the significant reduction of the administrative burden associated with chasing payments. Not to mention the awkward conversations this chasing routinely demands.

Invoice financing in the real world

Sometimes, the best way to comprehend the power of a tool like invoice financing is to look at how it could be used in a real-world context. We’ll do this here with a fictional company.

Meet Bartwell Fabrications

Bartwell Fabrications is a small business that manufactures steel components for the construction industry. Having completed an order for a local property development company, Perfect Homes, Bartwell sends the invoice, knowing they must wait 120 days for payment.

A week later, a French property developer enquires about Bartwell’s capacity for a much larger order. It would be the biggest Bartwell has ever undertaken.

However, low on raw materials and needing at least one more employee to fulfill the order on time, Bartwell cannot commit to the project until the invoice from Perfect Homes is paid.

The French property developer advises that this is too long to wait as the steel components are needed within the next two months.

Unable to secure a large enough loan with its bank, Bartwell Fabrications applies for invoice financing with an industry-trusted financier.

With the invoice and accompanying paperwork approved, Bartwell Fabrications receives 90% of the Perfect Homes invoice deposited into its business account within 48 hours. They then contact the French property developer to confirm that they can fulfill the order, terms are agreed, and a contract is signed.

120 days later, the remainder of the Perfect Homes invoice is paid into Bartwell’s business account, minus the financier’s fee.

Such is the success of the order with the French property developer Bartwell Fabrications is invited to work on three more projects across France, with more expected in the future.

Fictional though this example may be, this is precisely how invoice financing works in practice and why businesses across multiple sectors increasingly recognise its transformative potential.

Choosing the right invoice financing partner

Selecting the right invoice financing partner is crucial. Factors such as the financier’s reputation and the level of customer service they provide are essential to consider, but there are others, too.

When assessing potential financiers, look at the following:

  • Whether the financier is prepared to finance small and medium-sized businesses engaged in international trade;
  • How many countries the financier can operate in;
  • The simplicity of the approval process. Look for a financier that uses automation technology to ensure the process is fast and requires little documentation;
  • Whether the financier will force you to repay your finance if the buyer defaults;
  • The size of the financing fees;
  • How long it takes for the financier to finance invoices. Some will deposit funds within hours, others after weeks (or even months);

How much of the invoice is advanced. Whereas some will advance at least 90% of invoice face value, others typically advance 70-80%.

Keep calm and carry on

Used strategically, invoice financing is a formidable tool for navigating the ups and downs of cashflow management.

It empowers small businesses like yours to unlock growth opportunities and take advantage of opportunities that would otherwise seem out of reach.

The wait and worry of unpaid invoices can make any business feel like it is caught in a storm. However, those same invoices can be unlocked with invoice financing and become the key to reaching a place of calm, measured confidence.

Invoice financing with Stenn

Stenn specializes in providing invoice financing services to small and medium-sized businesses engaged in international trade and working with delayed payment terms.

Turn unpaid invoices into liquid capital with Stenn now. Alternatively, learn more about the other financing options available to your business in our Resources Hub.

Since 2016, Stenn has powered over $15 billion in financed assets, supported by trusted partners, including Citi Bank, Goldman Sachs, HSBC, and Natixis. Our team of experts specializes in generating agile, tailored financing solutions that help you do business on your terms.