Tuesday 11st Aug 2020
After successfully navigating the turbulence that COVID-19 has presented, many organisations are perhaps starting to turn the corner in a positive way – especially if they have already sought trusted financial assistance.
Business loans, overdrafts and flexible repayment options have all been popular choices for enterprises during their time of need in the first half of 2020.
And, with an uplift in queries concerning services such as invoice finance, it is clear to see that companies are exploring different ways to improve cash flow. In turn, the Government has been rolling out new-look credit schemes to assist in economic survival which has included the recent introduction of the Bounce Back Loan Scheme (BBLS).
So, with many avenues to consider, what must organisations understand when applying for financial assistance during COVID-19? And which service is right for those who are keen to invest in future growth? Some of our insights below should help to answer those very questions:
Invoice finance explained further
Specifically introduced to provide straightforward cash boosts for enterprises in need, invoice finance supports businesses by taking away the typical 30-90-day wait when receiving payments from customers and suppliers.
Invoice finance enables organisations to raise invoices for goods and services. A copy of the document is then sent to a financial services partner to provide up to 90% of the invoice amount within 24 hours. The remaining 10% is then given once full payment has been received.
There are two types of invoice financing services available in the UK – invoice factoring and invoice discounting. The former instructs the third party to collect outstanding cash on a company’s behalf meaning managers can prioritise their working day and not worry about chasing up late payments.
Meanwhile, invoice discounting is a confidential service that allows businesses to release money from unpaid invoices and free up the cash back into the establishment. As well as providing the reassurance that they won’t have to wait up to 120 days for customer payments to occur, this can help firms to manage their own credit control processes and negotiate better terms with suppliers.
Understanding the BBLS
Introduced by the Government in early 2020, this scheme has enabled small and medium-sized businesses to access finance more quickly during the Coronavirus outbreak. Organisations can borrow between £2,000 and £50,000.
The Government has pledged that it will fund 100% of the cash, with no interest to pay for the first 12 months. But, after 12 months, the interest rate will be 2.5% a year.
This option can prove to be helpful to organisations that have been financially challenged during the crisis, however, they must be eligible for the loan in the first place. For example, the criteria requests only UK-based enterprises, established before 1st March 2020. They should also prove they’ve been adversely impacted by the Coronavirus outbreak.
What is the difference between invoice finance and BBLS?
It primarily comes down to flexibility and credit management because both offer strong benefits in helping SME’s tackle a difficult climate and still be in control of their own finances. When easing cashflow concerns, speed is of the essence, so it’s vital that businesses know exactly which service is suitable to meet their current situation.
For those interested in pursuing invoice financing, savvy financial providers should be committed to having no hidden fees and no extras costs alongside the outsourcing of their credit control. Firms keen to explore BBLS, might find themselves coming up against the interest repayments further down the line, therefore it’s imperative to understand all terms and conditions beforehand to assist in the long run.
Eligibility will also be a huge factor in which avenue to take because, in both instances, companies must meet certain criteria. For example, the Government scheme doesn’t accept applications from banks, insurers and reinsurers, public sector bodies, and state-funded primaries and secondaries. Neither can it be made available to those already claiming under the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme or COVID-19 Corporate Financing Facility.
Comparatively, when pursuing invoice finance, companies should typically be start-ups, growing or well-established within their sectors and have a minimum turnover of £50,000 per year. So, there are considerations to be made across the board when it comes to being eligible for specific credit schemes.
When exploring trusted cash boost services, it’s important for organisations to fully research the options and understand why they’re the best fit for them. Both services mentioned here are designed to help during the most challenging of climates. Therefore, it’s vital to take the time to know exactly what the advantages and considerations will be – all of which should be discussed with a trusted finance provider.
We help over 800 SMEs to bolster their cashflows via our invoice finance services. Get in touch about our six-month trial period HERE.