Can invoice discounting help a growing contractor keep taking on new work when suppliers want paying long before customers pay? In this case, yes.
Wise Factoring arranged a £200,000 invoice discounting facility for a fast-growing perimeter fencing and security company in Wales with a turnover of around £1.5 million. The business was winning larger contracts but its working capital was being squeezed, forcing it to slow down just as new opportunities were arriving.
From introduction to the most suitable lender to having funds in its account took less than a week.
The Business
The company installs perimeter fencing and security for commercial sites and housebuilders, with council work also on the horizon.
Invoices were raised once each job was completed, usually on 30 days or 30 days end of month terms.
The Challenge: Paying Suppliers Before Customers Paid
Like many contractors, the business had to pay for materials either upfront or within 14 days, while its own customers took 30 days or more to pay.
As larger contracts came in, that gap grew. Available working capital was being squeezed and the directors were having to put the brakes on growth, even though the work was there.
They needed a reliable source of funding that would grow with their sales and cover the costs of taking on bigger jobs, including materials, staff, equipment and vehicles.
Why Invoice Discounting Was the Right Fit
To prepare for the upcoming contracts, the business had brought in an accounts person to manage its sales ledger.
That made invoice discounting a better fit than invoice factoring. With invoice discounting the business keeps control of its own credit control and continues to deal directly with its customers, rather than the funder collecting payments on its behalf.
Its customers were established commercial businesses and housebuilders. Invoices were also raised for completed work, so the debtor book was straightforward for a funder to assess.
The Solution: A £200,000 Invoice Discounting Facility
Wise Factoring identified the most suitable lender from our panel and arranged a £200,000 invoice discounting facility with an 85% advance against eligible invoices.
As soon as a completed job was invoiced, the business could draw down 85% of its value instead of waiting 30 days or more for payment. The balance, less fees, is released when the customer pays.
The whole process, from introduction to the lender to funds in the account, took less than a week.
The Result
With cash coming in as soon as work was invoiced, the business could pay suppliers on time and cover its overheads without holding back.
Most importantly, it could keep saying yes to new contracts. Because the facility is linked to the sales ledger, the funding available grows as turnover grows, giving the directors confidence to keep expanding.
Invoice Finance for Fencing and Security Contractors
Fencing, security and other specialist contractors often face the same cash flow pressure: materials and labour have to be paid for early while customers pay on 30 to 60 day terms or longer.
Invoice discounting and invoice factoring can both help, depending on whether you want to manage your own collections. If you work on construction contracts and raise applications for payment rather than invoices, construction factoring may be more suitable.
Invoice Discounting for Contractors: FAQs
Can fencing contractors use invoice discounting?
Yes. Fencing contractors that invoice commercial customers, housebuilders or public sector bodies on credit terms can use invoice discounting to release cash tied up in unpaid invoices. It is usually best suited to established businesses with someone in place to manage their own credit control.
What is the difference between invoice discounting and invoice factoring for a contractor?
With invoice discounting, your business keeps control of its sales ledger and collects payment from customers itself. With invoice factoring, the funder manages credit control and collections on your behalf. In this case the business had brought in an accounts person, so invoice discounting was the better fit.
How much of each invoice can I access?
It depends on the funder and the quality of your customers, but advances of around 80% to 90% are common. This business received an 85% advance against eligible invoices.
Can invoice discounting help if I have to pay suppliers before my customers pay me?
Yes, this is one of the most common reasons businesses use it. Releasing most of an invoice’s value as soon as the work is invoiced helps bridge the gap between paying for materials and receiving payment from customers.
Is invoice discounting suitable if we invoice once a job is completed?
Yes. Invoices raised for completed work are generally the simplest type of debt for a funder to assess, which can make invoice discounting straightforward for contractors who invoice on completion.
How quickly can an invoice discounting facility be set up?
Often within a week or two, depending on how quickly the requested information is provided and the funder’s due diligence. In this case it took less than a week from introduction to funds reaching the business’s account.
Need Working Capital to Take On More Contracts?
If suppliers want paying before your customers pay you, speak to Wise Factoring. We will look at your customers, payment terms and growth plans and find the funder best suited to your business.
Talk to Wise Factoring about invoice discounting for your business.
Every application is subject to individual assessment and funder approval. Previous outcomes do not guarantee that funding will be available in other cases.
Related services: Invoice Discounting | Invoice Factoring | Construction Factoring
