What You Should know About Invoice Financing In Uganda

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Invoice financing is a way for businesses to borrow money against the amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.

How does invoice financing work for you as a company or firm in Uganda?

Invoice financing allows the company or a firm to meet its short-term liquidity needs based on the invoices generated which are still unpaid by its customers. Unpaid invoices are accounts receivable, which means that the company will receive that amount but at a later date.

If your company faces a liquidity crunch in that period, it has the option to go for invoice financing to meet its liquidity requirement. Your company can use the cash to pay employees or suppliers, or invest in getting new machinery, etc.

Click here to inquire or get a invoice finance for business,firm or company in Uganda

Let me give you a good example so that you can get true picture of what we mean by invoice financing. Well, supposing you supply stationery to the ministry of education worth 20,000,000/- (twenty million Uganda shillings) and the ministry of education has to process your payment but it’s taking weeks if not months to get through, that’s where invoice financing comes in. the lender will give you a percentage of the money you expect to paid to you by the ministry of education at an interest while the lender waits for the ministry payment to come through.

The benefit of invoice financing is that the company doesn't have to wait for accounts receivable to come and then start paying its employees, buy equipment, etc in to run its daily activities. They can do that as and when they get the money from the bank or lender.

One important feature to understand in invoice financing is that if the company fails to make payment to the bank/lender, it can use the invoice as collateral. Invoice financing can be done in two distinct ways - one is factoring and the other one is discounting.

Click here to inquire or get a invoice finance for business,firm or company in Uganda

Is invoice finance a good form of business funding for your company in Uganda?

Lots of businesses could benefit from financial help of some kind, whether it’s extra funding for growth or regular cash injections to balance cash flow. Could invoice finance be the answer?

Invoice finance is growing in popularity as a simple solution to a variety of financial funding needs, yet many business owners are unsure whether it is a good idea. The concept often brings to mind the days when this type of finance was used primarily for companies in financial difficulty, and while the association doesn’t apply any more, mud does tend to stick.

Businesses that offer customers credit can run into trouble even when the company is performing really well. Late payment of invoices is a notorious problem in the business-to-business sector, and when it happens regularly it can cause an imbalance in a company’s cash flow.

Cash flow can bring even large companies to their knees, but it is those which rely heavily on incoming payments in order to run their business such as wholesalers who must buy more stock or recruitment consultants who must pay their temping staff who are most seriously affected.

Click here to inquire or get a invoice finance for business,firm or company in Uganda

Invoice finance in its factoring form enables businesses to get paid on time whenever they issue an invoice. When a business signs up for a factoring facility, they submit their invoices to the factoring company, which advances a pre-agreed percentage of the invoice amount (up to 90%). The factoring company then chases up the customer for payment of the invoice, and once it is paid that part of the loan is completed and the difference passed on to you.

Factoring therefore has several benefits. Firstly, you can be sure of when you will be paid every time you issue an invoice and how much of the payment you will receive. This allows you to plan your cash flow more effectively so you can cover your outgoings each week or month.

Another benefit is that the factoring company will take on the role of managing your sales ledger and chasing customers for payment. This frees up time that would have otherwise been spent on phone calls and letters to customers.

Some business owners become worried that with a third party contacting customers over payment, valuable relationships could be tainted. However, working closely with the factoring company on the nature of the communications with customers, and maintaining your own contact with customers on a regular basis ensures that there are no negative effects.

Invoice discounting is a second variation on invoice finance, generally used by larger companies that need capital funds for growth. Unlike factoring, invoice discounting allows a business to keep control of its sales ledger.

Because larger companies generally have higher sales, they can gain a huge cash injection at a comparatively low rate of interest through invoice discounting. This could be used for growth activities and even for management buy-outs or buy-ins.

Click here to inquire or get a invoice finance for business,firm or company in Uganda

An advantage of invoice finance as a form of borrowing is that while there is fixed service fee, the interest is only charged on advances that remain unfulfilled by customers. Therefore each time a customer pays their bill, the debt is repaid. Because of this, the amount you can borrow grows along with your business, meaning you don’t have to keep extending your overdraft or re-apply for a loan as with conventional business lending.

What are the difficulties of invoice financing you can face while in Uganda?

The main difficulty with invoice finance is finding a lender that will work well with the needs of your business.

You need to find a company with the same attitude towards managing customers that you have and which will conduct affairs on your behalf with the same professionalism and courtesy. It also helps a great deal to work with an invoice finance company that understands the industry you operate in.

When you and your invoice finance facility are not a good match, problems can arise. For example, you might become concerned that the lender is approaching your customers in a way that could be damaging to your relationship with them, or that customers will worry when they receive their bill from a finance company and not directly from you.

These types of problems can be prevented before they appear, simply by working closely with a broker to choose an invoice finance lender and set up the facility. If the broker is impartial, they will know which questions to ask you in order to best understand how your business works and which type of lender your business would flourish under.

Click here to inquire or get a invoice finance for business,firm or company in Uganda

Factoring and invoice discounting also work best when the amount of your invoices totals a certain level, so there is a minimum turnover of 30,000,000/- (thirty million Uganda shillings) for eligibility with most lenders. This ensures that there are sufficient assets to borrow against. If your business is below this threshold you should be wary if lenders still wish to offer you a facility.

It may seem like there would be little variation between invoice finance companies but in fact, because there are so many of them out there, the gulf between some is wide. It pays to do some research before approaching a broker, so you can say with confidence which companies you would rather not do business with.

Our Conclusion

All in all, Invoice financing can solve problems associated with customers taking a long time to pay and difficulties obtaining other types of business credit.

Invoice financing also benefits lenders because unlike extending a line of credit, which is unsecured and leaves little recourse if the business doesn’t repay what it borrows, invoices act as collateral for invoice financing.

Click here to inquire or get a invoice finance for business,firm or company in Uganda