Keywords: electronic invoicing, einvoicing, e-invoicing, cashflow, invoice finance, discount

Quick-fix finance has negative impacts for businesses

Susie West | News | 20 July 2012

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As small businesses struggle with cashflow problems, it can be all too tempting for them to turn to quick-fix forms of financing in order to get hold of the money they need to stay afloat.

But doing so could store up future problems, according to a new report by the Hilton-Baird Group. Its biannual SME Trends Index shows that firms who choose short-term solutions like credit cards and loans tend to suffer from lower turnover, as well as restricted growth and poor productivity.

Of the 454 companies questioned, some 51% rely on business credit cards to keep their heads above water, while 47% use bank overdrafts. Only 18% are using alternative options like invoice financing, even though it is proving increasingly popular as a method of securing access to working capital.

Interestingly, around 57% of those in the latter group reported a rise in turnover during the six months to April 2012, while only 36% of those turning to overdraft facilities and 32% of those using credit cards did the same.

Evette Orams, Managing Director of Hilton-Baird Financial Services, said: "There are many more funding options available for businesses than there may seem and there is often no need to turn to payday loans and credit cards.

"Invoice finance is an effective, proven and highly flexible option. By releasing cash against a company's sales ledger, it bridges the gap between an invoice being raised on credit terms and the date the payment is received, which nowadays sadly is significantly beyond the actual terms of the credit, with late payments being a significant problem."

Where businesses use electronic invoicing this type of financing can be a particularly attractive option, both for small supplies and their large buyers. Because invoices are sent instantly buyers have a greater window of opportunity in which to exploit discounts, while for suppliers it means getting access to the cash they need even faster.