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• 01 Jul

  Using Invoice Finance To Pay Off Debt

  

  The amount of business loans taken out in the wake of the coronavirus pandemic has seen the debt burden on UK companies soar to record levels. Whilst many of these loans carry an initial payment holiday, after the first 12 months the repayments will start to fall due, putting many under extreme pressure to meet the repayments. This is coupled with potential uncertainty about the UK economy.

  Loans can create a debt burden for a company, in that they have to be fully repaid (plus interest) over the term of the loan. The term may be several years, but over that period of time, the full amount of the capital sum borrowed has to be repaid to the lender. There are other forms of finance which do not work in the same way, they are described as "revolving". This means that (in the right circumstances) the amount of funding can remain constant, or even increase over time.

  Pay Off Debt With Invoice Finance

  One form of revolving business finance is invoice finance (also called receivables funding). The funder advances you money against your outstanding sales ledger of unpaid customer invoices. So unlike a loan, the cash is already yours - you are just getting access to it immediately before your customer pays.

  This means that a typical UK company, with say 2 to 3 months of sales invoices outstanding, could release a significant proportion of their unpaid sales ledger immediately (the funding given is a proportion of the value of the unpaid sales ledger). The funding is repaid when the customers pay, so you don't have to pay off the debt over time - your customers do that. However, at the same time as customers are paying off invoices, and repaying the finance, you are raising new invoices which gives rise to new funding against those invoices. In this way, if your total sales ledger remains stable, the amount of funding also remains stable - unlike the loans that need to be repaid over time.

  If you are concerned about the burden of debt and loans that you are facing, we would be pleased to explain how you could pay off debt using invoice finance.

  By Glenn Blackman