Invoice finance and how it can help small and growing companies

In the wake of the FSB's concern over small companies being subjected to poor payment practices, we look at three businesses that were aided by invoice finance.

Invoice finance can be broken down into two distinct products, factoring and invoice discounting, both of which serve to provide a steady flow of cash to small businesses without them having to take on further debt. Businesses know when they will receive funds enabling them to make plans to meet their own payment deadlines, as well as building for the future.

As part of a factoring service, the funder will chase outstanding invoices on behalf of the business. This frees up time to get on with the day to day running of the operation. Many small businesses end up losing a lot of time and expenditure chasing clients for payment.

Businesses that choose invoice discounting will retain the task of chasing invoices and simply use the finance facility.

But how does invoice finance work for real companies in the real world?

Machinery and equipment rental company, Access Platforms Aberdeen (APA), is set to more than double turnover for its training service by the end of 2015 thanks to an invoice discounting facility of £350,000 from Bibby Financial Services.

The past five years have seen significant growth for the company as it expanded its operation into new depots, driven by the upturn of the oil and gas and construction markets in Scotland. During this period APA required working capital to sustain its growth but director Rob Petrie found it difficult to obtain the level of service he expected from the business’ bank.

Petrie says, ‘We have ambitious expansion plans for APA and this means we need a reliable funding provider to make sure we can invest in both the rental side of the company as well as the training centres. We are a family-run business and I want to make sure the company is growing steadily while my sons gradually take the helm.

‘I was not receiving the levels of customer service I wanted from the bank we were working with – in fact it was hampering the business’ ability to grow.’

The company’s long-term goal over the next three years is to become one of the top training providers in Scotland and to expand into Dundee and Inverness. ‘We also plan to increase our fleet by 20 per cent, meaning we’ll have 220 units in operation.’ The new facility will help achieve this, he adds.

With the new funding facility Petrie now also has the type of individual relationship he wanted with the relationship manager, with whom he keeps in touch regularly.

Bibby Financial Services Scotland head of sales Alan Anderson says, ‘APA is a great example of an entrepreneurial and growing business that required flexible working capital to achieve its potential.’

Getting on top of payroll

Birmingham based start-up Nelson Recruitment Services began trading in November 2013 and has since seen rapid growth with a projected turnover of £2 million in its first year.

The business was started by managing director Paul Nelson who, after ten years’ experience in the recruitment industry, decided to set up his own firm as he believed he could provide a better service to customers than his employers.

He counts his funding facility as integral to the success of the business. ‘The invoice finance facility is imperative to our success. We are now able to easily keep on top of our weekly payroll, which ultimately means people get paid on time.

‘Invoice finance allows us to have a steady flow of cash to keep up with an industry that demands a flexible funding arrangement,’ he adds.

See also: The benefits of invoice finance

For facilities management company, Selwyn Building Services (SBS), a lucrative new contract was made possible with invoice finance. The business is employing 35 new staff and has a target of 45 per cent growth over the next two years, after achieving £500,000 in funding.

Based in Moreton, the Wirral, and with an office in Birmingham, SBS works across the UK with a number of blue chip clients in the pub and restaurant sector, as well as supermarkets and static site maintenance for the healthcare sector.

The new contract will see the business working with pub retailer and brewer Greene King, supplying facilities management services for around 262 pubs, restaurants and hotels.

The contract has enabled the company to invest in employing qualified mechanical engineers and support staff to supply mechanical planned and pre-planned maintenance, taking the total number of staff employed by SBS up to 140.

Securing the funding enabled SBS to have the cash flow available to tender for and meet the requirements of the contract.

Jim Doherty, SBS financial director says, ‘It would have been almost financially impossible to fulfil the new contract with our usual level of cash flow.

 “It is great to be a local employer which is growing successfully. This contract is part of long term sustainable growth for SBS, and one which is bringing much needed jobs and opportunities to the people of Wirral, Merseyside and the North West.’

SBS has seen significant growth over the last four years, increasing turnover from £2.5 million to £11 million, and aims to continue this upward drive with a targeted 45 per cent increase over the next two years.

Further reading on invoice finance

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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Small Business Funding

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