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It’s the start of a new year and a great time to review your funding strategy, particularly if your business is growing quickly and needs an injection of capital to optimise the opportunities that are emerging. Most businesses have an established long term funding structure in place, but often it is the lack of an easily accessible short term funding top-up that can really put the breaks on successful companies.
One of the key challenges in 2023 is to maintain or at least have in place, a reliable source of short term funding for working capital peaks and troughs as the year unfolds so that cashflow does not become a factor in hampering your growth plans. This has never been more relevant that now, with supplier costs on the rise, an inflationary environment and raw material scarcity meaning companies with an active source of funding have a competitive advantage.
In this article, InvoiceFair’s Head of Sales Garry Holligan outlines the 6 general forms of funding available to businesses today and sets out the situations where each are most appropriate.
Cashflow or working capital challenges frequently force a company to seek outside financing and experience over the last 2 to 3 years suggests that mitigating macro level impacts to business has given business owners the need to review their funding.
There are many circumstances that can prompt a business owner to seek short term funding such as
• Funding the ongoing operations of the business against rising costs of materials
• Managing supply chain delays
• Expansion into a new market
• Funding a new contract
• Investing in new company assets such as property, machinery and vehicles
• Increases in the staffing headcount to meet demand
But what is the best way to fund these? There are several forms of financing available and they broadly fall into 6 main types
1. Debt Financing
Borrowing money from a lender such as traditional banks or from alternative sources. Business owners can take out loans for a variety of purposes like starting a business, purchasing stock or property or expanding their business operations.
Raising capital by selling a percentage of the share ownership of the business. Equity financing can be a good option for business who are yet to turn a profit or who have a limited credit track record.
Raising small amounts of money from a large number of people, usually through a dedicated online platform. This source can be particularly useful for raising small amounts of money for a specific project, or getting a fledging business idea off the ground.
4. Venture Capital
A group of professional investors provide capital to start-up businesses with high growth potential and are willing to take on higher levels of risk.
5. Government Grants
These are funds provided by government agencies to support business that are engaged in certain activities, such as research and development or social impact. While a large volume of available grants are concentrated on start-ups, there are many grants available to more mature businesses, so are very much worth researching or getting advice from an accounting professional.
6. Receivables funding
This involves the selling of ‘receivables’ (sales orders, WIP, invoices or even future sales) to release funds earlier than when customers pay. This unlocks capital from within the business and can be used to fund ongoing operations, new projects, acquire new customers and avail of discounts on stock purchasing.
Some options, such as debt financing, will require the business to make regular payments and will most likely the provision of security or even personal guarantees from the Directors of the company. Others such as equity funding, may involve giving up ownership stakes – and control – in the business. It’s important to choose the option that is the best fit for the business and adaptable enough to ensure flexibility of funding as the business grows.
According to Garry Holligan, planning is the key to success:
It’s important for business owners to carefully consider the pros and cons of each financing option before making a decision. The best practice is to fully understand what exactly they wish or need to fund and match the funding solution to this.
Far too often business owners try to make their need match what’s available in the market. Many traditional solutions can be restrictive and lack the flexibility to align to the ebb and flow of a business or indeed may be prohibitive based on a sector.
With the options available these days in the market, and with a little bit of research or advice, there is a mechanism or a combination of funding solutions that will be the ideal fit.
So, How Can We Help?
There are better, more cost-effective ways of receiving upfront payments to boost cashflows, allowing your business to increase growth multiples. One solution is to use Invoice Finance with single or multiple invoices on a B2B funding platform like InvoiceFair. This allows you to trade on the basis of your own success with your most valuable asset – your customers.
Here’s a quick example of how it works.
Company A has recently won a major new contract worth €1.2m to be billed in 12 equal monthly invoices. They can raise upfront growth funding by trading the invoices on the InvoiceFair platform and receive 90% of the value of the invoice (less finance costs) within 24 hours of approval and the remaining 10% when their debtor pays the invoices on normal terms.
That gives them upfront cash at a lower cost without compromising the customer relationship. It also means that Company A now has a reliable, flexible funding partner with an ‘always-on’ source of funds as they grow into the future. They can decide to trade any invoice from any number of their customer whenever they need to. They are not caught in a long-term binding agreement that is tricky to get out of or a pricing structure that limits the profitability of the business and has a negative impact on cashflow.
There are of course other forms of trade finance like business loans, leasing or asset finance, equity finance, but these all either involve a longer-term commitment, restrictive costing, or do not have the flexibility of invoice finance.
Invoice finance is just one of the many funding solutions that InvoiceFair offers that are truly innovative and are designed to address the short term funding gaps that arise as part of the normal flow of a business year.
InvoiceFair is a funding platform where companies can convert past or future revenues into cash quickly. It does this by advancing funds against invoices, claims, or a company’s predictable future revenues which can then be used as upfront growth capital. Uniquely, we provide funding at every stage of the credit lifecycle, offering a powerful mix of solutions to help companies grow. This allows them to take control, react to market opportunities, grow faster and create more value without restriction. In the past 5 years, we have advanced an impressive €1.3bn+ to growing UK & Irish companies.
Want to learn more about InvoiceFair and how our range of alternative finance solutions could give your business the freedom to fund your own future? Contact us here.
We have a range of innovative working capital solutions that help businesses manage their cashflow more effectively and grow faster.