What are the challenges that Invoice Finance aims to solve?

Availability to traditional sources of funding is contracting, which is inevitable when we see insolvencies increase. However, this is a vicious circle as most businesses fail or become insolvent due to a lack of cash. 

We can reduce this by providing as many businesses as possible with access to liquidity, an issue which many businesses face. In this way, it's the same as other forms of finance. But the way in which invoice finance differentiates itself is through its flexibility. It's directly linked to receivables and advancing cash against invoices you've issued for goods and services already delivered, but not yet paid for. It's a product that can grow as your business grows, without holding assets ransom or by increasing a business's indebtedness.

And it's not just about the cash. There's a higher likelihood of acceptance compared to more conventional funding types, and it gives you direct credit management support. Invoice Finance firms like Optimum Finance help alleviate a significant administrative burden, effectively managing your sales ledger and providing credit risk management, credit control and reconciliation. This is a huge part of our service, adding value to a business beyond cash.

What are the main distinctions between Invoice Finance and more conventional forms of finance or loans?

While both drive liquidity and access to funds, conventional loan creates debt, whereas Invoice Finance does not. Essentially, Invoice Finance is the purchase of an asset, which in this case is an an invoice by a funder - as such, debt is not created on the balance sheet.

A traditional loan is often secured against a ‘traditional' asset or series of assets, such as a plant and its machinery, vehicles, infrastructure and so on. Similarly, mortgages are often tied to a property or hard fixed asset. Whilst these hold big value, what we have found is that one of the biggest assets in most businesses, and on their balance sheets, is actually their trade debtors or receivables. By unlocking the cash trapped within these receivables as an asset, we can raise access to funds almost immediately. Many businesses are still unaware this is possible. Where traditional banks follow a prescribed set of rules and regulations, we give businesses the time of day and flexibility to work to their needs, and speed things up in the same process.

Do you have examples of customers you have helped with funding?

Yes indeed. Invoice Finance embraces entrepreneurship and growth, offering a much-needed cash flow buffer for businesses at all stages of their development. Take the example of Mondo Brewing Company, one of London's most successful craft brewing enterprises. The co-founder and Director Todd Matteson opted for Invoice Finance as a cashflow funding tool better suited to his company's needs.

Optimum Finance pays Mondo an agreed percentage of the invoice value as soon as it is submitted, driving access to liquidity at the point of invoice as opposed to needing to wait. Mondo buys hundreds of kilograms of hops and many tons of malt weekly, along with the chemicals necessary to the brewing process. It creates something in the order of 45,000 litres of craft beers every month to a total of approximately 5,000  hectolitres a year.

"Optimum advances 85% of the invoice value," Todd explains, "with access to up to £250,000 at any one time, and this is a tremendous benefit in paying our own suppliers and giving us greater flexibility in our purchasing decisions." 

Specialist automotive power tools business Kielder is another good example and from a completely different industry. Paying suppliers and staff while waiting to be paid themselves by some of the major resellers was the challenge, and Invoice Finance the solution.

Mo Han, co-founder and Head of Purchasing at Kielder, says the benefit of Invoice Finance is that it releases cash into the business almost immediately, regardless of how long it takes a customer to finally pay: "Optimum advances 85% of the invoice value and that helps us not only pay our own people and our key suppliers, but also enables us to offer discounts on bulk orders to our key customers. With some of our customers requiring 60-day payment terms, it enables us to bridge the cashflow gap, and do so with what is effectively our own money. What's especially good about it is that as we grow, so the amount of cash available to us also grows, and this will help us expand."

What can the industry do to improve? And what does the future of Invoice Finance look like to you?

Invoice Finance is a great product and can help where others can't. Where historically it may have been seen as a last resort proposed by big banks, we aim to disrupt this narrative and drive awareness. What it now does, is unlock cash trapped in unpaid invoices in a far simpler fashion.

With technological advancement has come development, and with things like Open Banking, Invoice Finance providers now have access to more information than they would have had historically and are able to interrogate that information to make better informed decisions to release more cash. Access to cloud-based accounting platforms, for example, enables customers to upload their ledgers more easily and quickly - and we can give them immediate clarity over how much money is available to them and what it's costing.

By putting a face to our facility, we strive to become an extension of the business, not just a finance facility. And in the context of a declining funding appetite across the industry for more traditional sources of finance, what businesses want now is support.

For further information please visit Optimum Finance