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Articles | finance, fintech, invoice-finance

Alternative financing: the key to keeping cash flowing

Insolvencies amongst construction businesses are on the rise. Since the pandemic began in March 2020, more than 1,600 firms within the building industry have folded*. There’s no question about it – it has been an exceptionally hard two years for construction businesses to stay afloat, particularly the smaller providers. On top of that, many companies would have still been feeling knock-on effects from Carillion’s 2018 collapse, and Brexit uncertainty still lingers over the supply and costs of raw materials.

Administrators have suggested that cashflow issues and the length of time it takes to get paid from companies higher in the supply chain have contributed to the downfall of so many businesses within our industry**. Government initiatives like the Prompt Payment Code were put in place to encourage more timely payment from larger businesses to SMEs. However, new data suggests that payment times are still far from meeting the 30-day target set by the government, and opinion amongst industry professionals is divided as to whether the new restrictions are having any impact on improving the speed of disbursements***. Construction businesses are clearly having to find new and innovative ways to keep cash flowing.

From our experience, the answer to not only survival but also aggressive growth within this new industry landscape lay in the hands of alternative finance and approaching how cash flow works differently. We are a small family-owned manufacturing business in the North West working directly with a range of construction businesses. Due to the nature of our contracts, the first year of the pandemic left us in serious need of a solution for bridging income periods and levelling out cash flows.

Our previous business was felled by delayed customer payments and poor financing experiences, so we were understandably hesitant about relying on too much external funding when we started over with Fortis. However, we quickly found our growth was stunted as competing for bigger business meant longer payment terms, and higher overheads that often exceeded the pace of money coming in.

Our accountant presented us with an alternative solution – a new entrant to the invoice factoring market that offered flexible contracts, allowed us to submit single or multiple invoices and did not charge the sizable percentage fees of more traditional providers. Having ventured into the world of invoice financing before, we weren’t complete strangers to the idea but were still cautious of the complicated terms and conditions normally placed on repayments. We decided to test this new provider with a one-off and saw the money in our bank account in under a day, and with much lower fees than other similar businesses. Previously, we felt repayments from providers would be slow and even further prolonged by their need for heaps of additional information on the customers behind the invoices. AREX Markets uses unique data points to do all of this themselves, and in return, we get more of our money back and can pay our employees faster.

Now over a year into the use of AREX Markets, our business has drastically changed. We are able to pitch for larger pieces of business with the kinds of payment terms that would have previously steered us away or needed to be negotiated. Recently, we won two new contracts worth £400k – a significant amount of business for us, particularly coming out of a pandemic.

In addition to winning new business, having flexible cash flow options has also allowed us a great deal of forward planning. Whereas we previously relied on projects spanning a few months to keep steady income, we can now take on projects spanning years. With larger, retained contracts on the books, we have been able to forecast resources and expenses more accurately. Money is no longer tied up in unpaid invoices and we were able to double our turnover in a year where most other businesses were happy to simply breakeven.

While material costs continue to rise and government initiatives only go so far in attempting to prompt timely payments, there are new solutions entering the market that will help keep businesses in the black. AREX was the best option for us at a time when contracts and the economy were stagnating, but it has also proven itself to be the key to the future of our business too. 

*“Construction insolvencies outstrip those in hospitality and retail”, 18 March 2021 – https://www.building.co.uk/news/construction-insolvencies-outstrip-those-in-hospitality-and-retail/5110992.article

**“Payment times revealed: how long the biggest firms take to pay”, 13 December 2021 – https://www.constructionnews.co.uk/financial/payment-times-revealed-how-long-the-biggest-firms-take-to-pay-13-12-2021/

***“Payment times revealed: how long the biggest firms take to pay”, 13 December 2021 – https://www.constructionnews.co.uk/financial/payment-times-revealed-how-long-the-biggest-firms-take-to-pay-13-12-2021/

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