Balances: Availability v Liability

Availability 

Availability refers to the funds immediately accessible to your business through invoice finance, determined as a percentage of the total invoice value, ranging from 70% to 95% of the invoice value.

For example, if you possess outstanding invoices amounting to £10,000 and your invoice finance provider offers an 85% advance rate, your availability would be £8,500 (£10,000 x 0.85). This is the sum you can immediately access to fulfil your working capital requirements.

Liability 

Liability in invoice finance is the financial commitment your business assumes when utilising this financing option. It represents the amount you owe to the financing provider for the funds accessed against your outstanding invoices. Unlike traditional debt, liability is a short-term arrangement based on the value of your invoices. As your customers settle their invoices, the liability decreases and is completely paid off once all invoices are paid.

Understanding the Relationship

The connection between availability and liability in invoice finance is dynamic. As you raise fresh invoices and your customers make payments, your availability expands while your liability dwindles. The aim is to maintain a balanced equilibrium between availability and liability, ensuring your business accesses the requisite funds without incurring unwarranted financial encumbrances.

Here are some crucial aspects to consider when managing availability and liability:

1. Cash Flow Management: Consistently monitor your availability and liability to proficiently manage your cash flow, guaranteeing sufficient working capital for your daily operational needs.

2. Costs and Fees: Gain a comprehensive understanding of the expenses linked with invoice finance, including service charges and interest rates, to accurately evaluate the financial implications for your business. This empowers you to make judicious decisions regarding when and how to utilise invoice finance.

3. Growth Opportunities: Invoice finance can prove invaluable for seizing growth opportunities, such as diversifying your product line, entering fresh markets, or accepting larger contracts. Evaluate your availability to capitalise on such prospects as they arise.

4. Repayment Strategy: Develop a well-considered repayment strategy that aligns with your cash flow and business objectives. Contemplate whether you prefer to settle the financing provider's dues prematurely or permit the liability to dwindle naturally as invoices are paid.