This week we speak to Touch Financial Consultant Sam Sandhu on the topic of finance for IT businesses.
1. Hi Sam, thanks for speaking to us. What can you tell us about the IT sector in the UK?
ICT (Information and communications technology) is a big and busy industry. It accounts for about 10% of the country’s GDP, so there are a lot of businesses out there that provide software, hardware and IT services to clients.
2. Is it easy to run an IT business? What financial challenges do these businesses face?
Even successful IT companies face financial challenges. Businesses with contractual elements, especially B2B companies, may find it difficult to bridge a gap in the cash flow. IT contractors may be adhering to stage payment agreements, whereby they get paid when a stage of a project is completed. Depending circumstances, these stages may not be met on time, whether it is due to a delay on the part of the contractor or the client, and the business does not get paid until the work is done. This delay in payment will have an adverse effect on the business’s cash flow.
3. And why is cash flow so important?
Cash flow is the movement of money in or out of a business. If an IT company is experiencing a decline in or restriction of incoming revenue, it will have less cash readily available, and may suffer from issues like paying staff and meeting expenses. Say you have a small IT company that is working on a big project for an important client, and the client is late in processing the payment. How do you pay contractors and ensure that expenses like rent and utilities are paid for?
4. Are there any solutions to this problem?
Yes, and the best one is to use invoice finance to fund this cash flow gap. Invoice finance allows an IT company an advance on the cash value of unpaid invoices – this can be within 24 hours after an invoice has been issued.
A lender fronts the IT company up to 95% of the value of an unpaid invoice, and releases the remainder of the amount when the IT company’s client has paid up. There is a service charge, but that’s often a small price to pay for having cash in hand that can be used to pay off overheads and to invest in your business, helping it to grow.
5. Is invoice finance easy to obtain?
It’s usually easier to set up an invoice finance facility compared to getting a bank loan or overdraft. Firstly because an IF facility is more flexible – you’d have to meet many conditions to qualify for a loan or overdraft, but there are less hoops to jump through when with an IF facility.
Secondly, it’s usually more difficult and expensive to get an extension on a bank loan or overdraft. An IF facility grows with your business, meaning that it increases along with your sales revenue.
6. How can an IT company obtain invoice finance?
You’ve got to find the most suitable IF facility for your business. Touch Financial can help. We’re connected to over 30 of the country’s leading finance providers, from mainstream banks to independent lenders, so we’ll be able to put IT companies in touch with the most suitable lenders, given their requirements. Lenders also offer highly competitive rates through us, so you may get rates that you can’t get elsewhere.
Our recommendation service is also free to clients like IT companies, and there’s no obligation to follow through unless you’re satisfied with the lender that we’ve recommended.
If you’d like more information or would like to set up an IF facility, do get in touch with me – I’d be more than happy to help.
To speak to Sam or one of our other invoice finance consultants, please call us on 08453889725, email us at email@example.com or fill in a Get A Quote form and we’ll be in touch as soon as possible.