Date
27 July 2017
Invoice financing allows business owners to borrow against their outstanding sales. The concept is similar to letters of credit for exporters. Photo: internet
Invoice financing allows business owners to borrow against their outstanding sales. The concept is similar to letters of credit for exporters. Photo: internet

Why SMEs need to explore different funding tools

From renovations to IT services, a wide array of projects face a host of related problems, not least of which is collection.

“I would rather do small household repairs than take on a renovation project on shops or restaurants,” a small contractor said.

Big projects involve more money but it takes months before clients pay while minor repairs are paid on the spot, he said.

Some have decided not to put up anymore with collection problems and have simply switched business.

“I used to run an IT firm but getting the clients to pay on time was a constant headache,” SinoCDN owner Martin Hui said.

Hui now does display advertising on buses.

One of the worst nightmares for a small entrepreneur is cash flow, which could bankrupt a business if one or two big customers don’t pay on time.

To begin with, businesses are already offering credit terms of 30 days or longer in order to win the contract.

Often, collection and cash flow worries hold back SMEs from expanding.

To do that, one needs more people, materials and equipment, but first, one needs money to finance these investments.

It’s a classic chicken-and-egg scenario. Cash flow problems just make things harder.

SMEs in the UK are warming to invoice financing as a new financing tool, according to business news website Maven.

Invoice financing allows business owners to borrow against their outstanding sales. SMEs can instantly receive a certain percentage of sales when the goods or services are delivered without having to wait for the client to pay.

That said, businesses should diversify their sources of working capital, including crowdfunding, inventory finance and asset finance, according to Maven.

– Contact us at [email protected]

RA

EJ Insight writer

EJI Weekly Newsletter

Please click here to unsubscribe