Advisory

How to manage your clients’ cash flow with funding

16 Aug 2021

Managing cash flow is critical for the survival and success of any company. But the disruption caused by Covid-19 and Brexit has made it all the more difficult for many businesses to maintain a positive cash flow. In this post, we’ll run through how you can help manage your clients’ cash flow by leveraging flexible business finance.

How to manage your clients’ cash flow with funding

As you’ll already know, failing to manage cash flow can lead to a number of problems. Take debtor days, for example. If a business’ debtor days are too lengthy, the business could end up waiting 60 or even 90 days before it receives payment, and this can have a negative knock on effect in other areas of the business. However, a business may have to pay their creditors/suppliers in 30 days which causes a cash gap until they get paid.

Businesses aren’t necessarily “at fault” when it comes to their cash flow shortcomings, especially at a time when factors such as supply chain disruption due to Brexit and Covid-19 are out of business owners’ control. Fortunately, there are lots of business funding options on the market today that can help your clients manage their cash flow more effectively. 

Is your client experiencing problems with importing or exporting? 

It’s likely that Covid-19 and Brexit are having a significant impact on how some of your clients interact with their customers and supply chains, especially if they trade internationally

Higher shipping costs, complex customs procedures and a shortage of raw materials are posing problems when it comes to maintaining a positive cash flow. 

Trade finance is a type of working capital finance that can provide your clients with the cash they need to export goods or buy inventory or stock from a supplier. The lender acts as a connector between the supplier/manufacturer and retailer/end buyer. If you have a client who wants to grow their business, it means that they can do so without needing a significant working capital reserve.

Are they a supplier in need of a cash flow boost? 

Supply chain finance is sometimes confused with trade finance, however, they’re not the same thing. While trade finance can help your clients at the beginning of their supply chain journey, supply chain finance is a type of funding that buyers offer to their suppliers. 

Your clients can use supply chain finance to benefit from their buyers’ higher credit scores, and at the same time the buyers can lengthen their payment terms. Think about it – established companies are very likely to honour their suppliers’ invoices, so the risk to the lender is low.

Supply chain finance enables your client, the supplier, to get 100% of the value up front from the lender, minus a small fee as soon as the buyer approves the invoice. It can be an effective way for your client to stabilise their cash flow because they get paid within a few days rather than waiting for up to 120 days to see their cash in the bank.

Are they waiting too long to get paid?

Similar to supply chain finance, invoice finance enables businesses to get paid 80% of the value of their invoices immediately instead of having to wait weeks or even months for payment. If your client regularly invoices clients and needs help managing cashflow, this type of secured business finance could work for them. 

Your client can choose from invoice discounting or invoice factoring. Invoice discounting is the most straightforward type because the business does its own credit control. With invoice factoring, the lender chases late payments on their behalf, enabling them to focus on other areas of their business. 

It could be that selective invoice finance or spot factoring are more appropriate for your client. Business owners can use selective invoice finance to finance specific accounts, while spot factoring lets them choose specific invoices to finance. 

Do they take customer card payments?

If your client needs a short-term cash injection and they take customer card payments (online or on their premises), they might be eligible for a merchant cash advance. It’s a way for businesses to access cash quickly and instead of paying back a set amount plus interest every month, the business pays it back through a percentage of its customer card payments. 

It’s useful for businesses with no/few assets or a limited credit score. Because repayments are made in line with trade, your client will pay more when the business is thriving and vice versa. This means they should still be able to meet repayments during quieter periods. 

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Do they require ad hoc funding?

If you have a client who would benefit from access to funding on a “tap in, tap out” basis, a revolving credit facility could be the way forward. As the name suggests, it’s designed to let businesses withdraw money, spend it, repay it and withdraw it again on a rolling basis.

The lender and borrower agree a maximum amount that can be spent, and the repayment terms stipulate the speed at which repayments need to be made following a withdrawal. Your client may decide to use it regularly or just a couple of times – it’s up to them!

Have they or are they being affected by Covid-19?

If you have clients who require funding for recovery or growth, they might be eligible for finance through the Recovery Loan Scheme (RLS), which is open until 31 December 2021. Businesses of all sizes can apply, and unlike the CBILS, there’s no turnover cap. The RLS is delivered through the following finance types:

  • Term loans (£25,001–£10 million, up to 6 years)

  • Overdrafts (£25,001–£10 million, up to 3 years)

  • Invoice finance (£1,000–£10 million, up to 3 years)

  • Asset finance (£1,000–£10 million, up to 6 years)

If you have a client who took out a facility under the Coronavirus Business Interruption Loan Scheme (CBILS), or any other type of business finance to help them get through the lockdown period, they might be able to save money on repayment fees by refinancing their CBILS finance for an RLS facility. Check out this article to find out how.

Connect – business funding at your fingertips

At Funding Options, we work directly with businesses and their trusted advisors to secure vital business finance. We combine our in-depth understanding of the business finance market with technology to find financial solutions that fit. 

If you’re interested in benefiting from our service, join our advisory platform, Connect. In partnering with us, you can leverage our expertise and pass the benefits on to your clients.

As long as the amount your client requires finance is between £1000 up to £15M, we can help. We’ll compare over 120 lenders specialising in different types of finance, including funding that is designed for specific sectors of the economy. 

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Thomas Boyd

Thomas Boyd

Head of Commercial

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