How invoice discounting helps SMEs manage long payment terms and late payments

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One of the biggest challenges for small to medium sized enterprises (SMEs) is cash flow uncertainty. For business-to-business companies, which often issue invoices and expect to be paid after delivering products and services, managing prompt payments is key because income delays can impact their ability to operate normally. 

Today, most payment terms range from 30-90 days, with some companies reporting there is a trend for extended invoice terms. These long payment terms can leave SMEs with a ‘funding gap’ and create significant liquidity challenges. For example, if you are paying your own suppliers within 30 days but have agreed 60-day terms with your customers, you may find yourself without the working capital needed to continue trading.

Further challenges arise when customers do not pay on time as late payments can prohibit companies from functioning on a day-to-day basis. Not only does this have a negative impact on cash flow, but the company also has to spend a significant amount of time chasing these invoices, when their attention could be focussed elsewhere in the business.

How invoice discounting can help late payments

Invoice discounting can help resolve the cash flow issues arising from late payments because companies receive payment instantly. As well as an immediate cash boost, this provides stability on a longer term basis because income dates are reliable.

It’s very straightforward too. We pay up to 90% of the value of each unpaid customer invoice the instant it is issued. Then, the business liaises with their client to collect the payment as usual, and once the invoice is settled, they receive the balance less an agreed fee. 

This type of finance solution is great for B2B companies because they can maintain control of credit collections. This means that customer relationships are upheld, and the finance facility can remain completely confidential.

Invoice finance is also a flexible way to fund companies over a longer period because it grows in line with turnover. With this support, day-to-day operations, such as purchasing stock or paying wages, can continue as usual.

What our clients say

When an invoice discounting facility from Close Brothers helped Interstoq manage long payment terms, founding partner Gordon McCarthy said:

“Close Brothers came to see us face to face and took the time to really understand how the business works. We agreed a bespoke contract and we were really impressed with Close Brothers’ flexibility. 

“It’s all going really well and there is cash flowing back into the business much quicker than it was previously.”

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