Invoice finance: improving cash flow and strengthening customer relationships

Invoice finance is rapidly growing in popularity. But what is it, and why are an increasing number of SMEs using it? Ian Cole, Head of Invoice Finance for Siemens Financial Services (SFS) in the UK explains

According to the Asset Based Finance Association (ABFA), the total amount advanced to UK and Republic of Ireland businesses through invoice finance and asset-based lending at the close of 2017 was around £23billion, up 5 per cent on the previous year.[1]The vast majority (81 per cent) of this funding was advanced using invoice finance.[2]

For anyone who might still think that invoice finance is a mark of a distressed company, these figures totally scotch any such notion. A financial service that is delivering around £23billion annually is no minor matter. The reason for the soaring popularity of invoice finance is that cash-flow management is now a mainstream issue for finance directors, to be handled with sustainable and responsible techniques, rather than unsophisticated methods such as paying suppliers late.

Invoice finance describes a range of financial products designed to bridge the gap between the delivery of goods or services by a business to its customers and the receipt of payments from those customers. Siemens Financial Services offers invoice finance through an easy-to-use digital interface, with payout immediately triggered on invoice submission and often clearing the same day.

By using invoice finance, when a company invoices a customer, up to 90 per cent of the approved invoice total is immediately advanced by the finance provider, with the remaining 10 per cent (less charges) paid once their customer settles the balance. This provides the company with essential working capital, so it can then invest in other areas of its business without having to wait for bills to be paid.

Invoice finance is commonly used by SMEs across a variety of industries – in particular those businesses that might need to keep appropriate stock levels in order to be able to respond efficiently and effectively to their customers’ demands. A fluid cash-flow product such as invoice finance will enable sufficient funds to achieve this. Managing cash flow in this way can also help companies support their customers more effectively and, by extension, improve customer relations. The flexibility that invoice finance offers means that companies can have sufficient supplies of key products ready to respond to urgent customer requests. Businesses that can assist their customers at short notice will clearly have an advantage over competitors that need to wait for a confirmed customer request before ordering a particular product.

The collective amount of potential capital locked up in unpaid invoices and the associated costs of chasing them, is staggering. Unpaid invoices amount to 14 per cent of SMEs’ annual turnover, or £252billion[3], and the costs associated with pursuing payment are around £10.8billion a year[4].

With access to working capital through a product such as invoice finance, businesses can invest in other important areas that could otherwise remain neglected when cash flow is tight, for example essential marketing (promotion, advertising and entertainment only account for a relatively low proportion of SME expenditure).

Finally, having improved cash flow also opens greater potential for businesses to explore new markets and territories – providing greater flexibility particularly in light of the approaching deadline for Brexit and the uncertainty surrounding tariffs.


To speak to Ian about invoice finance from Siemens Financial Services, please contact him at  iancole@siemens.com

[1] Asset Based Finance Association, Quarterly Statistics to December 2017

[2] Asset Based Finance Association, Quarterly Statistics to December 2017

[3] Based on 1.8 trillion SME annual turnover: Department for Business Innovation & Skills, Business Population Estimates for the UK and Regions in 2015, November 2015

[4] Paul Davies, The UK`s SMEs spend nearly 11 billion a year chasing overdue payments. , 27 July 2015