Running a business is a challenge at the best of times and keeping the cash flowing and paying suppliers and staff can be a constant juggling act. This has never been more relevant than in the current climate of financial instability caused by the credit crunch, where raw materials, energy and fuel costs and a squeeze on credit are putting even more pressure on construction owners and managers.
In today’s tougher trading environment, construction owners and managers need to ensure they have a more robust cash flow than ever. Just as important, they need to ensure they have minimum exposure to financial risks. Any insolvencies higher up the supply chain can have a catastrophic effect on construction firms, and, in a worse case scenario, can even threaten their survival.
Vital for any business is maintaining a smooth day-to-day cash flow but, within the construction industry, the challenge can be even greater. The difficulties faced by construction owners and managers are quite different to the problems faced by other industries.
The construction sector, by its very nature, is particularly vulnerable, as firms need to buy significant amounts of raw materials up-front. In many construction projects, the amount paid out for raw materials and third party services can be exceptionally large and owners and managers often have to deal with staged payments, resulting in cash flow headaches.
One such form of finance which has become popular in the industry is invoice finance. While many banks and traditional lenders have had to withdraw funding from perceived ‘high risk’ sectors such as the construction industry and tightened their lending criteria, invoice finance is going from strength to strength with contractors across the UK.
An invoice financier works by advancing up to 85 per cent of the value of a sales invoice, as soon as it is issued. This can make the difference between boom and bust, as firms have immediate access to vital cash that is tied up in invoices and can continue to pay for essentials such as staff and materials.
The benefits of an invoice finance facility are that it not only provides a cash injection into the business but also offers access to an ongoing source of funds that are linked directly to sales. It can improve a business’ profitability as they can pay suppliers early, buy in larger quantities and take advantage of any volume discounts that are available.
In addition, invoice financiers typically take a much more in-depth view of a business than other lenders and take into account the entire financial make-up when making a funding decision. An extensive credit history is not required, as the sales ledger of the business is used to secure funds.
Invoice finance has become increasingly more sophisticated in recent years and organisations such as Bibby Financial Services has developed different products and bespoke solutions for particular sectors such as the construction industry. Rather than offering a ‘one size fits all’ solution like banks, Bibby Financial Services has invested in market experts and tasked them with developing a product that meets the particular nuances of the industry. In particular Bibby has a team of dedicated professionals, including quantity surveyors and recovery professionals, who will work with you and get to know your business and clients, managing contractual disputes on behalf of the owner- manager.
All in all, despite the current economic uncertainty, there is light at the end of the tunnel for owners and managers. With careful financial planning and a comprehensive review of all the funding options available, contractors can aim high and get the funding in place to make the most of new projects.
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