When it comes to funding for exporters, choosing the right financing option can significantly impact cashflow and business growth. In this blog, we’ll explore Single Invoice Finance and compare it with traditional financing methods, highlighting the pros and cons of each.
What is Single Invoice Finance?
Single Invoice Finance, also known as Selective Invoice Finance, allows exporters to receive immediate cash against a specific invoice rather than their entire sales ledger. This method is particularly beneficial for businesses that have fluctuating cashflow needs or are dealing with overseas customers.
Pros of Single Invoice Finance
- Immediate Cashflow: Exporters can access funds quickly, improving liquidity without waiting for payment terms to expire.
- Flexibility: Businesses can choose which invoices to finance, allowing for tailored funding solutions based on immediate needs.
- Reduced Risk: Since funding is based on specific invoices, exporters can mitigate risks associated with non-payment from foreign customers.
- No Long-Term Commitment: Unlike traditional loans, Single Invoice Finance does not require long-term contracts, making it easier to manage.
When Single Invoice Finance May Not Be the Best Option
- Cost: Whilst Single Invoice Finance offers flexibility and quick access to cash, the fees can be higher compared to traditional financing options, particularly if used frequently.
- Limited Funding: This method provides cash against selected invoices, which may not cover all operational costs. It’s important to assess if this aligns with your overall funding needs.
- Dependence on Customer Creditworthiness: The ability to finance an invoice depends on the creditworthiness of your overseas customer. This can be a consideration if your customers’ credit profiles vary.
Traditional Financing Options
1. Bank Loans
Bank loans are a common form of financing for exporters, providing a lump sum that can be used for various business needs.
Pros:
- Lower Interest Rates: Typically, bank loans offer lower interest rates compared to invoice finance.
- Larger Amounts: Exporters can secure substantial funding, which can be used for expansion or operational costs.
Cons:
- Rigorous Approval Process: Obtaining a bank loan can be time-consuming and requires extensive documentation.
- Collateral Requirements: Banks often require collateral, which can be a barrier for small businesses.
- Minimum Term: Loans often have a minimum interest term and/or fees applicable before you can look to repay the loan early. The costs of the minimum term can be expensive relative to the period of the time the loan is outstanding.
- Early Repayment Penalties: Repaying a loan early can lead to early repayment charges being levied.
2. Invoice Finance
Invoice Factoring involves selling invoices to a third party (factor) at a discount in exchange for immediate cash.
Pros:
- Quick Access to Cash: Similar to Single Invoice Finance, factoring provides immediate funds.
- No Debt Accumulation: Since it’s a sale of invoices, it doesn’t add to the company’s debt.
Cons:
- Costly Fees: Invoice Finance can be expensive, with fees that can eat into profits.
- Customer Relationship Risks: The funder may handle collections, which can affect customer relationships.
Conclusion: Which is Better for Exporters?
The choice between Single Invoice Finance and traditional financing options largely depends on the specific needs of the exporting business.
- Single Invoice Finance is ideal for exporters seeking flexibility and quick access to cash against specific invoices, especially when dealing with foreign customer funding.
- Traditional financing, such as bank loans or invoice factoring, may be more suitable for businesses looking for larger sums at lower interest rates, albeit with a more rigorous approval process.
Ultimately, exporters should assess their cashflow needs, customer creditworthiness, and the costs associated with each option to determine the best fit for their business. Whether you opt for Export Debtor Finance or traditional methods, understanding your financing options is crucial for sustaining and growing your exporting business.
How Newable Commerce Can Help
Newable Commerce aims to simplify international trade for the UK’s roughly 300,000 exporting SMEs.
“Simplifying international trade” is the core principle that guides everything we do at Newable Commerce. We’re not just tackling current problems; we’re completely rethinking what trade finance means. Our goal is to fundamentally change how customers think about trade finance, proving that it can be simple and efficient, setting a new benchmark for the industry.
Newable Commerce exists to simplify international trade for SMEs. We do this through a range of products and services that enable businesses to move and manage funds internationally and optimise cash flow through our working capital debt products.
Newable Commerce offers tailored solutions for exporters looking to leverage single invoice finance effectively. We provide funding for payment terms of up to 150 days, allowing businesses to unlock working capital tied up in overseas invoices. With competitive rates starting from 1.7% per 30 days, Newable Commerce enables exporters to access up to 90% of the invoice value upfront, providing immediate cash flow to cover production costs and other operational expenses. Our expertise in export finance ensures that SMEs can navigate the complexities of international trade with confidence, whether dealing with foreign customer funding or managing overseas debtor working capital. By partnering with Newable Commerce, exporters can focus on growing their business while enjoying the benefits of flexible and efficient financing solutions.
