Many SMEs automatically cover the gap between production and payment by using invoice financiers (IFs), which claim to advance between 80% and 100% of the value of each invoice raised, but on average advance only about 63%. This has been fuelled by the reluctance of the traditional banks to lend to SMEs, but virtually all businesses would be better off using one of the other forms of finance available.
IFs usually require personal guarantees and involve huge amounts of internal administration and complicated fee structures, plus the amount of available finance is unpredictable. When business is strong, a company will have lots of money sitting in its current accounts and when business is slow, and the company really needs it, the finance is not there.
Established businesses with strong order books are better off opting for reasonably priced fixed term loans, which are easier to obtain than many believe.
For example, ArchOver offers a fixed term loan for up to two years, which can be rolled over for a further period if desired. This means the business always knows how much is in the bank and the same finance is available in slow times as in good.
These are secured against the insured long-term value of the debtor book and, as long as the value of accounts receivable stays above a certain level, the finance will remain the same. The loans are remarkably straightforward to arrange and no personal guarantees are required.
It is often said that IFs are good for start-up companies with no trading history or stable debtor book, and the amount of finance available grows as the company grows. Nonsense, these enterprises really need equity finance as growth in start-ups is never in a straight line and the problems of good and bad periods are even greater.
It is essential to look beyond IFs in all situations
To learn more about how ArchOver can help with your business needs, contact a member of the team today at 0203 021 8100.