What is receivables financing and why do you need it to fund your contingent workers?
Recruiters and consultancies who place contractors are continuously planning their next move. Whether this involves securing new contracts, winning new clients or expanding your business, you will need plenty of capital to fuel your growth. You could also use it to pay contractors, finish projects, or streamline your cash flow. Whatever the case may be, securing a loan through traditional financing institutions is not always as easy as it seems, especially for small to medium-sized enterprises.
Many companies who place contractors and freelancers often find themselves working with limited lines of credit and variable revenue streams. Sonovate offers companies of all shapes and structures the support they need to foster sustainable growth in the recruitment industry. Our solution is based around receivable financing, a form of asset-based lending that allows organisations to use their unpaid invoices as collateral. Let’s take a closer look at what asset-based finance entails.
What does asset-based lending look like?
The asset-based lending sector includes a wide range of loans all of which use assets as collateral.
Asset-based lending can be secured through an array of different assets, including stocks, inventory, machinery, and even future streams of income. One type of asset-based lending is known as receivable financing, which involves using unpaid invoices to secure a loan.
The asset-based lending process tends to be easier and quicker than other traditional funding options. Unsecured loans or lines of credit typically require a significant financial history and solid credit score. This makes asset-based finance SME friendly, as it helps them to meet their short-term cash needs without having to jump through unrealistic hoops.
Is asset-based lending the same as invoice financing or invoice factoring?
Yes, invoice financing, also known as invoice factoring is essentially a type of asset-based lending. More specifically, asset-based factoring allows a business to sell their company’s accounts receivables to a third-party financier in exchange for quick cash.
The factoring company purchases any unpaid invoices at a discount and releases up to 100% of the invoice value almost immediately. In essence, those are the asset-based financing basics, you get a cash advance on your future income and the financing company receives a fee for their services.
You won’t even need to worry about setting up a credit control team, as you can pass over the management of your sales ledger to the factoring company. This makes the financing relationship ideal for SMEs, as they may not have the time or resources to chase after unpaid invoices. Instead, you can focus your efforts on what is truly important – growing your business.
How does receivables financing work?
Let’s say you’re a recruitment agency that has trouble maintaining a steady cash flow. You need liquidity to run your business, but you also find yourself regularly waiting up to 90 days to receive outstanding invoices.
To address this pressing issue, you could approach an invoice financing company to receive an advance on the cash that you are already owed. You simply pass on your unpaid invoices to the financing company, pay a factoring fee, and receive the cash up front.
The lender will first evaluate the creditworthiness of the debtor and approve your sales ledger before releasing the funds. After that, you’ll be able to access funding against the unpaid invoice. For Sonovate customers, this is up to 100% of the value of the invoice in as little as 24 hours.
Once you receive the cash, you can complete outstanding projects, cover advertising expenses, or pay your contractors and employees. You get access to instant cash and a steady flow of revenue whilst the factoring company receives a fee for its service.
Within the receivables financing model, the credit collection process ultimately differs across invoice asset-based finance factoring and discounting. If you opt for invoice factoring, the financier takes over the credit and collection process, whereas, if you opt for discounting, your own team must oversee chasing after the unpaid invoices.
In a broader sense, receivables financing works by helping businesses meet their liquidity needs. Whether you need to finance new projects, expand your business, or plug sizable cash flow gaps, asset and invoice finance provides a worthwhile solution to these problems.
In short, what are the benefits of asset-based lending & receivables finance
- Free up your cashflow
- Get funding quickly
- Spend your cash in flexible ways
- Make the most of often unused assets on your balance sheet
- Retain your equity
Sonovate – Your receivables financing solution
Sonovate offers a quick and flexible solution to pressing cash flow issues. Instead of spending months jumping through hoops to secure financing from a bank, you can get started in a matter of minutes, without the need for start-up fees or personal guarantees.
Sonovate’s funding platform is specifically engineered to help you grow your company. Don’t worry about entering an all-turnover agreement, as you can decide which contractors you would like to fund. You can also choose a “funding only” relationship with Sonovate or opt for the all-in-one solution that includes a back-office platform. From a centralised system, you’ll be able to monitor invoicing and payments for your contractor base through real-time metrics.
Our relationship managers are recruitment sector experts, and will offer insights when you need them.
Most importantly, Sonovate’s asset and invoice finance service helps you optimise your revenue so that you can grow your company sustainably. We release 100% of the funds so that business runs as smoothly as possible and contractors are paid on time, every time.
To learn more, request a demo.