How Receivables Financing Can Help Improve Cash Flow in Your Business

1. How Receivables Financing Can Help Improve Cash Flow in Your Business Receivables financing is a type of asset-based financing where a business sells its outstanding invoices or receivables to a financing company or factor at a discount. The financing company then advances a portion of the invoice value, typically between 70-90%, to the business upfront, while retaining the remaining amount as a reserve. Once the customer pays the invoice, the financing company releases the reserve to the business, less a factoring fee. How Receivables Financing Works The following are the steps involved in receivables financing: 1. A business sells its outstanding invoices to a financing company or factor at a discount. 2. The financing company verifies the invoice and the creditworthiness of the customer before agreeing to advance a portion of the invoice value. 3. The financing company advances the agreed amount to the business. 4. The business receives the upfront payment and uses it to improve its cash flow. 5. The customer pays the invoice directly to the financing company. Once the financing company receives the payment, it releases the reserve, less a factoring fee, to the business. Types of Receivables Financing The two main types of receivables financing are factoring and invoice discounting. Factoring Factoring is a type of receivables financing where a business sells its outstanding invoices to a financing company or factor at a discount. The factor then advances a portion of the invoice value, typically between 70-90%, to the business upfront, while retaining the remaining amount as a reserve. Once the customer pays the invoice, the factor releases the reserve to the business, less a factoring fee.

2. Pros: ● Quick access to cash ● No need for the business to chase payment from customers ● Can help improve cash flow Cons: ● Can be more expensive than invoice discounting. ● Customers may become aware of the arrangement, which could damage the business's reputation. Invoice Discounting Invoice discounting is a type of receivables financing where a business retains control over its sales ledger and collects payments from its customers. The financing company or factor provides the business with an advance of the invoice value, again, typically between 70-90%, based on the creditworthiness of the customers. Once the customer pays the invoice, the business repays the advance, plus a discount or fee, to the financing company or factor. Pros ● More control over the sales ledger and customer relationships ● Can be cheaper than factoring ● Confidential, as customers are not aware of the arrangement Cons ● May require the business to have a strong credit rating ● The business is responsible for collecting payment from customers Benefits of Receivables Financing Receivables financing can provide a range of benefits for businesses, including:

3. Improved Cash Flow Receivables financing provides a quick and effective way for businesses to improve their cash flow by accessing funds that are tied up in unpaid invoices. Better Working Capital Management By accessing cash sooner, businesses can better manage their working capital, pay suppliers on time, and take advantage of growth opportunities. Reduced Administrative Burden Receivables financing can reduce the administrative burden of managing and chasing payment from customers, allowing businesses to focus on their core operations. More Predictable Cash Flow Receivables financing provides businesses with more predictable cash flow, as they can rely on a steady stream of funding from the financing company. How Receivables Financing Affects SCF and SCF Platforms Receivables financing can have a significant impact on Supply Chain Finance (SCF) and SCF platforms. Some of the ways in which it affects these areas include: Improved Access to Finance for SMEs Receivables financing can provide SMEs with better access to finance by allowing them to use their unpaid invoices as collateral. This can help level the playing field between large and small businesses in the supply chain. Increased Efficiency

4. Receivables financing can help to increase the efficiency of SCF platforms by streamlining the process of financing and payment. This can help reduce the administrative burden and time spent on managing working capital. Increased Transparency Receivables financing can provide greater transparency in the supply chain by giving all parties visibility into the financing and payment process. This can help build trust and improve relationships between suppliers and buyers. Choosing the Right Receivables Financing Solution When choosing a receivables financing solution, businesses should consider the following factors: Cost Businesses should compare the costs of different receivables financing solutions, including factoring and invoice discounting, to determine which one offers the best value for money. Speed Businesses should consider how quickly they need access to cash and choose a receivables financing solution that can provide funds in a timely manner. Flexibility Businesses should consider whether the receivables financing solution offers flexibility in terms of the amount of funding available and the length of the financing period. Reputation Businesses should research the reputation of the financing company or factor to ensure that they are reputable and trustworthy. Conclusion

5. Receivables financing can be an effective solution for businesses looking to improve their cash flow and working capital management. By selling their outstanding invoices to a financing company or factor, businesses can access funds quickly and reduce the administrative burden of managing their receivables. Receivables financing can also have a positive impact on supply chain finance and SCF platforms by improving access to finance for SMEs, increasing efficiency, and increasing transparency. When choosing a receivables financing solution, businesses should consider the cost, speed, flexibility, and reputation of the financing company or factor to ensure that they select the right solution for their needs.