Invoice Finance and the energy crisis

Well, what a time it is to be in business. Post-global pandemic, a European land war, facing historic levels of inflation and an unprecedented cost of living crisis. In one working week a new prime minister was sworn in and Britain’s longest serving monarch passed away. I think we can all agree that few of us have lived through such a time.

With seemingly endless upheaval and swirling uncertainty, it’s natural to feel unsettled about what lies ahead and how it could affect your business. With delays in the release of Liz Truss’s long awaited plan to solve the energy crisis, it’s time to take matters into your own hands.

Why invoice finance?

While there’s no simple cure-all to the financial challenges businesses are facing, there are some simple, tried and tested ways to prepare your business for what lies ahead. It could be as simple as looking a month or two ahead at what you might need and planning your finances to accommodate.

Invoice finance is a product that’s designed to complement B2B businesses, in any environment. Modern iterations date back to the Romans, with evidence the method of financing was introduced in Mesopotamia. Even so, it’s stayed relevant and invaluable to this day. There’s a very simple reason, and one that we work hard to champion: flexibility. Invoice finance has developed to suit the natural flux of business cycles, acting as both a proactive and reactive tool. It focuses more on the future of a business, with less emphasis on the past like other lending facilities.

How can you predict the future?

That ‘future’ is simply assessed by the incoming invoices of a business: money guaranteed to come in because it’s been invoiced for goods or services provided. How is it guaranteed? In simple terms, lenders will analyse the companies that owe you money and determine whether they’re likely to pay.

As an alternative lender with a variety of funding options, we couldn’t suggest one form of finance is better overall compared to another. Each Kriya product has been designed to suit differing needs, and is often used in harmony with others.

How can invoice finance help me now?

Bills will always need paying. The cost of energy will likely be the highest you’ve encountered, even with potential government help. For times like these, an invoice finance facility could be the secret to future-proofing your business.

It’s important to remember that if a national issue like energy prices is affecting you, then it’s likely it’ll be affecting your customers as well. That means payment terms may get longer as they try to protect their balance sheets. 60, 90, even 120 days could become normal. That’s a long time to wait for crucial cash.

An invoice finance risk assessment will look closely at what’s expected to come in (what you’ve invoiced for) and offer you a facility that suits your needs, without making you expose your entire book (more on that later). Having a facility in place means you’ll have access to a ‘pot of cash’ to dip into as bills rise, without sacrificing employee wages or other running costs. Knowing bills are covered, regardless of how much they might rise, gives you the peace of mind needed to focus on what's important: running your business.

Expecting a quiet period? Secure a facility to make sure you’re not stretched for cash when demand is lower. Perhaps your business is reliably consistent and you’re looking to grow, but don’t want to take out a larger, long-term facility. Maybe you specialise in ceremonial tea towels and business is about to be booming.

How is invoice finance different to other forms of lending?

One of the bigger differences between invoice finance and other, larger lending facilities is that you’re not borrowing against tradtional assets. You’re borrowing against money that is expected to come in.

Another is that users have more control and aren’t locked into lengthy terms. The payments are being collected when the invoices are paid, whether that’s at 30, 60, 90 or 120 days. It’s perfect for long and short-term use.

Only need it for three months while you develop a new product? Done. Are your payment terms suited more to customer needs than your own cash flow needs, with no sign of changing? Easy. You can have a facility in place for YEARS, with no impact on your credit score.

Do I have to share my whole ledger?

A recurring misunderstanding we hear is that applying for an invoice finance facility means businesses must reveal their entire book. That’s because when your only lending options were big banks, businesses were expected to put up their whole ledger for scrutiny. This would leave them feeling very exposed. These days, you can pick and choose which invoices need funding, and for how long.

How does it work?

If you’ve never come across invoice finance before, you can read up here. If you’re looking for more ways to use it, have a read of this article for some pointers.

As we’ve mentioned, users have control over which invoices are funded and how long their facilities are in place. Something that we’re very proud of is our dedicated invoice finance customer service team. When you sign up, you’ll deal with an actual human (!) and once the facility is in place, you’ll have a dedicated portfolio manager. What’s not to love?

If you’d like to learn more about how a facility can help your business, click here.