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Two Flexible Ways to Strengthen Your Business Cash Flow

Maintaining healthy cash flow is one of the most persistent challenges facing growing businesses. Even when sales are strong, the timing of supplier bills, customer payments and other expenses can leave a temporary gap. Supplier finance and merchant cash advances are two alternative funding options that may help businesses manage these pressures without relying on a traditional business loan.

Supplier finance

Supplier finance allows a business to pay its supplier or creditor invoices over an agreed period, usually between one and twelve months. Rather than paying the full invoice immediately, the business spreads the cost through manageable monthly repayments. This can be especially useful when stock, equipment or services must be purchased before the business receives the resulting income.

There is normally a one-off arrangement fee, followed by charges based on the value of the supplier invoice and the length of the repayment term. A shorter period, such as three months, will generally cost less than spreading the same invoice over nine or twelve months. The business only incurs the relevant charges when it uses the facility.

Eligibility and pricing depend on the lender and the financial strength of the applicant. Businesses with stronger credit profiles are likely to have access to more favourable terms. However, because the finance is linked to a specific supplier invoice, it may still be worth exploring where conventional credit options are limited.

Merchant cash advances

A merchant cash advance offers an alternative for businesses that receive a significant proportion of their income through card payments. The funder provides an upfront cash sum, which is then repaid by taking an agreed percentage of future card sales.

This means repayments rise and fall with the business’s income. When card sales are strong, the business repays more; during quieter periods, repayments reduce. This can make the arrangement more manageable than a fixed monthly repayment, although the overall cost must still be considered carefully.

The amount offered will depend on the business’s revenue, trading history and general financial strength. Providers will typically expect the business to have traded for at least six months and to process around £10,000 or more in card sales each month. Charges generally consist of a fixed fee, with repayments collected automatically from incoming card transactions.

Which option might be right for your business?

Supplier finance is most relevant when a business needs help paying a particular supplier or creditor invoice. A merchant cash advance may be more suitable for an established card-based business that needs flexible working capital.

Both options can provide valuable breathing space and help a business continue investing, trading and growing.

Get in touch to discuss your options.