But no matter what the industry, most enterprises encounter problems with cash flow from time to time, with business owners feeling pressure from unpaid invoices and often struggling with the demand for new equipment and innovation.
Late or unpaid invoices can wreak havoc on a business’ cash flow and despite recruitment agency success, no agency is immune. For most recruiters, debtor balances are one of the largest assets in their balance sheets and while there may be large and frequent promises of payment, these invoices can often take a while to turn into cash.
Cash flow is an on-going problem and one that often causes a ripple effect from business to business, but this is where alternative funding can come into play, unlocking the cash that these businesses require in order to grow.
What funding options are available to help me purchase equipment?
The latest technology, software and equipment are a must within the recruitment industry in order for all accounts to run smoothly and to maintain efficiency within the company. However, this equipment can of course be expensive and if numerous pieces of kit are required all at once to ensure that everything is up-to-date, then a lack of money can become an issue.
If you’re in need of financial assistance to buy equipment for your business, then asset finance could be the option for you. It was designed to make it easier for businesses to afford the things they need to grow their enterprise. You will be required to pay a deposit for the items you require, but you will be able to pay back the money in manageable instalments over a set period of time.
The lender will pay for the asset on your behalf and will own the item themselves until you have paid the full amount. Once you have paid the cost of the item, then you will become the owner. However, it’s worth taking into account that while asset finance seems like the most affordable option for those unable to afford to pay for the asset in the first place, it can work out more expensive in the long run.
Hire purchase was originally designed to supply industrial equipment, construction equipment and machinery. But since the financial crisis in 2008, more and more small businesses have struggled to gain access to the vital funding that they need in order to get their dreams off the ground. As a result, lenders have taken a wider range of assets, namely ‘soft assets’ into account to ensure that they can help businesses in industries other than construction and manufacturing to get the ball rolling.
‘Soft assets’ include everyday items that are critical for businesses yet have a low intrinsic open market resale value. This can include things such as IT equipment and furniture - the very necessities you need for your employees to complete their jobs effectively while in the office.
Outdated computer equipment can cause real problems such as downtime or a loss of productivity within the office. So whether you’re in need of IT equipment, want to step up the security, or require new furniture and fittings to benefit an expansion, then asset finance could help you without burning a hole in your pocket.
How do I tackle late payments and unpaid invoices?
Late payments can affect any industry, and in the UK, 60 per cent of businesses in the business services sector reported that late payment is a problem.
Invoice finance can really help to get cash flowing within your expanding business. Having most of your cash tied up in unpaid invoices can often cause real problems and so if you are struggling with customers who are not paying on time, then this could be the option for you.
There are two types of invoice finance within the UK for you to take into account before you make a decision:
Factoring is also often called ‘debt factoring’ and tends to involve an invoice financier who manages your sales ledger and collects payments from your customers on your behalf. This works in your favour because when an invoice is raised, your financier will buy the debt owed to you by the customer and you’ll therefore receive the money that you need much quicker.
Factoring also frees up time as well as money. The time you would have otherwise spent controlling your finances and chasing clients for money can now be invested into other areas of your business. Potential customers will also be formally credit checked to indicate whether they are likely to be a late payer.
However, as you will not be controlling your ledger yourself or collecting payments from your customers directly, then your customers will be aware that you are using factoring as financial assistance.
Invoice discounting is another method of increasing the velocity at which cash flows into your business. This is a much more discreet method, as your financier won’t manage your sales ledger or chase up clients for you. Instead, you’ll manage your accounts yourself as normal and will borrow money from them against your unpaid invoices.
The amount paid up front will vary depending on the lender, but Aldermore will typically advance a high percentage of your total outstanding sales ledger. This usually will be around 90 per cent of the total cost of the invoice. Once the invoice is paid, you’ll receive the rest of the funds. Unlike factoring, you will need to conduct any credit checks yourself to minimise the likelihood of late payments.
If you need help freeing up cash into your business and could do with a helping hand to afford the very best equipment, then there are various invoice and asset finance solutions available.
For more information about various funding options to assist your recruitment company and help you on the path to success, get in touch with our expert advisors at Aldermore.
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