Skip to main content

Cutting the payment cycle

We have discussed potential solutions for minimising late payments and bad debt in previous blogs. In this blog we will consider the pros and cons of invoice finance, which is a means of borrowing money based on what your customers owe your business.

If you have ever been in the fortunate position of having a business that is growing rapidly, you will understand the challenge of getting money in quickly enough to pay for additional expenses such as extra staff, equipment and materials.

Rapid growth is great, but when your outstandings begin to pile up at the same time as your costs are rising you may feel the need to tap into some of that revenue more quickly than the agreed payment terms allow.

Invoice finance – the pros

Invoice finance is particularly useful for businesses that don’t have large cash reserves or companies that have seen rapid growth and need to accelerate their cash flow. They allow a business to release up to 90% of the value of an invoice within 24 hours, with the remaining amount released upon full payment of the invoice by a customer minus fees.

Invoice finance firms can check a customer’s credit worthiness, monitoring for any adverse signs and pre-empting problems with payment. In addition, the personalised advice they provide can be beneficial to a small business struggling with other financial problems.

Invoice financing allows a business to fund its own growth plans without having to levy physical assets against loans or other sources of finance.

Invoice finance – the cons

The ability of a business to secure invoice finance is dependent on its clients and the nature of their trade so it is not universally available. Cheaper options such as invoice discounting can be useful to plug short term cash flow problems, but other types (such as factoring) may be expensive and therefore harder to justify.

There will be a cost in the form of interest, fees or a discount to the face value of the invoice – all of which reduce the profitability of the business and means that in some cases offering an early payment discount can be cheaper than some forms of invoice finance.

Invoice finance can be difficult to escape once a business has become reliant on releasing cash from invoices on the day they are invoiced.

Can you afford to be patient?

Invoice finance can undoubtedly improve cash flow since you will be advanced the money you are owed before the invoice is paid. It may help with short term cash flow, but in the longer term reducing late payment requires a culture change that is only likely to be brought about by businesses changing their approach to credit management.

Taking effective action earlier will help your customers focus on paying on time, which in turn improves cash flow and reduces bad debt.

Either way, invoice finance should not be seen as a substitute for good credit management, which can be maintained by leveraging the financial information available from a cloud-based accounting solution such as Big Red Cloud.

Marc O'Dwyer

After completing a Graduate program in Marketing, Marc’s impressive sales career began at Allied Irish Banks, Pitney Bowes and Panasonic where he received numerous Irish and European sales performance awards and consistently exceeded targets and expectations. In 1992, Marc’s entrepreneurial spirit led him to set up his own business, Irish International Sales (IIS). Initially, this company was a reseller for Take 5 Accounts and Payroll software. Within four years, IIS became the largest reseller of Take 5 in Ireland, acquiring four other Take 5 resellers. He also found time to set up two mobile phone shops under the Cellular World brand and a web design company offering website design services for small businesses. In 2001, he bought the majority share in a small Irish software business, Big Red Book. At that time, the company was losing money. The company became profitable within two months, and Marc then acquired a payroll company to compliment Big Red Books Accounting products. In 2003, IIS were appointed as Channel Partners with SAP for their new SME product, SAP Business One. Marc sold his Take 5 business and concentrated on developing this new market for SAP As a result, by 2007, IIS was recognised as the largest Channel Partner for SAP in EMEA (Europe Middle East and Africa). In 2008, the IIS Sales Manager bought the Company from Marc in an MBO. He launched Big red cloud in June 2012, the online version of big red book, to date the company successfully converts 59% of trials into sales and the number of customers is growing rapidly. Marc continues to run both Big Red Book and Big Red Cloud which now support 75,000 businesses. He is a very keen sportsman, having played rugby for 20 years, represented Leinster at under 16 and under 20 levels, and league squash with Fitzwilliam Lawn Tennis Club for 10 years. Marc has competed in 11 Marathons, including the London and Boston Marathons, and has completed several Triathlons and Half Ironman races. He has also completed six Ironman Races in Austria(x2), Frankfurt (Germany), Nice (France) , Mallorca (Spain) and Copenhagen (Denmark)

This site is registered on as a development site. Switch to a production site key to remove this banner.