Why use alternative sources of finance for business

Updated: 27 July 2022

How does this alternative finance work?

Companies choose alternative finance options such as Invoice Finance for a wide variety of reasons, but what they all have in common is that they want faster access to the cash they’re owed.

Invoice finance shortens the collections process. Rather than having to wait anything from 30 to 90 days for payment, dependent on the agreed payment terms, you receive the payment you’re owed, usually within 24 hours of issuing the invoice. That means you can access the cash fast to grow the business, hire new people, pay off your own bills and pay your people without having to use your savings.

Invoice finance is not complicated. It’s a means to secure funding without taking on new debt. Basically, what you’re owed in invoices, you get through invoice financing.

What are the pros and cons of Invoice Finance?

  • Besides the fact that Invoice Finance allows you to raise funds without taking on new debt or gives you an opportunity when you’re not eligible for a traditional bank loan, there are costs associated with an invoice finance service.
  • Generally, your invoice finance service will take a small percentage off the invoice as its fee. But the upside is, you get access to your cash faster than if you were waiting for your customer to pay their invoice.
  • Simply, it is an alternative source of finance for business which allows you to raise cash fast without relying on traditional bank loans.

Why consider alternative sources of finance for business?

An Invoice Finance agreement can be completed in as little as 24 hours, a positive timescale for a business needing working capital or looking to grow. Waiting for payment can sometimes stunt business growth, particularly when the business is potential-rich but cash poor.

Getting your invoices paid usually within 24 hours of the invoice being issued takes away the risk of late paying customers.

Yes, there’s a charge associated with an Invoice Finance service, but this charge should be weighed up against the costs of other fundraising methods: bank loans, credit cards, overdrafts or borrowing from family and friends. If you look at bank loans or overdrafts you might also need to off-set business assets or property as collateral for cash.

Even if you can’t get a bank loan, you could still be considered for invoice finance. There are a few reasons why you wouldn’t be considered for bank finance: you might have been a Director of an organisation that’s gone bankrupt in the past, or you might be a start-up with no financial history.

As the business grows, the amount of cash available through invoice finance rises exponentially.

Alternative finance providers take many things into consideration when deciding whether to offer you their services: the experience of the Directors in your organisation; the business vision and strategy; the quality and credit rating of your customers and potential with regards to customers in the pipeline.

The invoice finance organisation is collecting money owed. This means that as the business grows, the amount of cash available through invoice finance rises exponentially.

For smaller businesses with no collections team, invoice finance is also ideal if your team is stretched. The organisation can run invoice collections from beginning to end. Usually you get to agree in the contract whether or not the organisation tells your customers that they are working on your behalf. Some organisations allow you to retain control, working confidentially under your name.

Working with an invoice finance organisation allows you so much more flexibility than if you were waiting for an invoice to be paid.

Invoice Finance is for you if:

  • you’re looking to fund a new venture or acquisition
  • you need to pay employees on time, every time
  • you require ready access to cash to fund new orders and find new clients
  • you want help with exporting and freight costs
  • you have some issues around past credit or bankruptcy

A summary of invoice finance

This popular alternative finance can help businesses in the following ways:

  • Provides dependable cash flow, freeing you from late paying clients or clients on long term payment schedule
  • Is perfect for start-ups, relatively new companies experiencing fast growth and small companies with no collections team
  • Works for companies seeking to restructure that often fall foul of traditional lenders with their gloomy books and low credit ratings at a time they most need cash to rebuild
  • Provides an alternative to companies unable to qualify for loans or lines of credit
  • Allows you to ask for favourable rates from suppliers, knowing they will be paid to a schedule

Invoice finance organisations take the whole story into account when making a decision. They see the people, not just the numbers, understanding that seasonality can play a large role in the creditworthiness of the business. This superficiality is detrimental to smaller businesses seeking growth opportunities. Invoice finance offers flexible alternative finance to traditional bank funding.

How we can help you

Bibby Financial Services offers alternative sources of finance for business. Our Invoice Finance solutions are tailor-made for businesses based on the quality of their customer orders, projections for business growth and the experience of the Directors running the business.

Bibby Financial Services works across more than 300 industry sectors serving the needs of over 10,900 businesses globally.

Our partnership with the Strategic Banking Corporation of Ireland (SBCI), a state backed agency created to deliver lower funding costs to SMEs, allow us to offer a discounted Invoice Finance and Trade Finance services to qualifying businesses.