The Cashflow Problem
A business can be profitable on paper and simultaneously running out of cash. This is not a sign of mismanagement — it is a structural consequence of how most B2B businesses operate, and it affects companies at every stage of growth.
Consider a building contractor with a strong order book. Staff must be paid every week. Materials must be purchased and paid for on delivery or within 30 days. The work takes 6 weeks to complete. The invoice is raised on completion. The client has 60-day payment terms. The gap between money going out and money coming in is 10 weeks. If the company has three active projects, it may be carrying 30 weeks of committed expenditure before any of it is recovered from clients. The profit margin is healthy; the cashflow position is precarious.
This timing mismatch is the root cause of most business cashflow problems. It is not specific to construction: the same dynamic affects recruitment agencies (weekly payroll against monthly invoicing), manufacturers (raw material purchase against 60-day debtor terms), and professional services firms of all kinds. Cashflow finance exists to bridge this structural gap.
Cashflow problems are a sign of growth, not failure
Paradoxically, cashflow pressure often intensifies as a business grows. A larger order book means more money tied up in work in progress and unpaid invoices. A business winning a major contract may need to employ more staff, buy more materials, and carry more working capital than its existing cash reserves can support. This is a cashflow problem caused by success, not difficulty — and it is exactly what cashflow finance is designed to solve.
Cashflow Finance Products
Several distinct products are designed to address cashflow timing gaps. They differ in the type of security required, the speed at which funds are available, and the type of business they best suit.
| Product | Security required | Speed | Best for | Typical cost |
|---|---|---|---|---|
| Invoice finance | Sales invoices (receivables) | 24 hrs per invoice once facility is live | B2B businesses with outstanding invoices | Service fee 0.2 to 2.5% + discount charge 1 to 4% over base |
| Merchant cash advance | Future card sales | 24 to 48 hours | Businesses taking card payments (retail, hospitality, e-commerce) | Factor rate 1.1 to 1.45× of advance |
| Secured working capital loan | Property equity | 2 to 3 weeks | Property owners needing larger, longer-term facility | 0.75 to 1.5% per month (bridging structure) |
| Unsecured working capital loan | None (personal guarantee) | 24 to 72 hours | Trading businesses with 12+ months bank statements; no assets | 15 to 60% APR depending on risk profile |
Invoice Finance for Cashflow
Invoice finance is the most efficient cashflow tool for B2B businesses. Rather than waiting 30, 60 or 90 days for customers to pay, you access 70 to 90% of each invoice value within 24 hours of raising it. The facility revolves automatically: as new invoices are raised, new advances become available without re-application.
The key advantage of invoice finance for cashflow management is that the facility grows in direct proportion to your turnover. A business winning larger contracts and raising larger invoices will automatically have more capital available — at exactly the point it is needed. This is fundamentally different from a bank overdraft with a fixed limit, which can be insufficient or require a time-consuming review and renegotiation at the moment of greatest need.
For a deeper examination of invoice finance structures, factoring versus discounting, and bad debt protection, see our dedicated article on Invoice Finance Explained.
Merchant Cash Advance
A merchant cash advance (MCA) is available to any business that takes card payments. The provider advances a lump sum — typically up to 150% of monthly card turnover — which is repaid automatically through a fixed percentage deduction from each day's card sales until the total repayment amount is cleared.
For example: a restaurant takes £50,000 per month through card payments. A provider advances £60,000. The repayment percentage is agreed at 12% of daily card sales. As each day's card takings are processed, 12% is automatically deducted and applied to repayment until the £60,000 (plus the provider's fee) is repaid. In a busy month, repayment is faster; in a quiet month, the deduction is proportionally smaller. There is no fixed repayment date and no risk of technical default if card sales fall.
MCA effective rates can be high — compare carefully
The factor rate on a merchant cash advance (typically expressed as 1.15× to 1.45×) can equate to a high effective APR when the repayment period is short. For a three-month advance at a 1.3 factor rate, the effective rate is significant. MCAs are best used for short-term cashflow gaps rather than ongoing capital requirements, and the total repayment cost should be calculated carefully before proceeding.
MCAs suit retail businesses, restaurants, hotels, and e-commerce businesses that process a consistent volume of card transactions. They are not suitable for businesses that invoice on credit terms (B2B invoice finance is more appropriate) or for businesses with very low or seasonal card volumes where repayment timing is unpredictable.
Working Capital Loans
Where invoice finance and merchant cash advances are revenue-linked, working capital loans provide a lump sum for general business purposes. They come in two main forms.
Secured working capital loans use property equity as security, typically in a bridging loan structure. A director or the company owns investment or commercial property with usable equity. The lender places a charge on the property and advances the working capital needed. Rates are lower than unsecured equivalents, facility sizes can be larger, and adverse credit has minimal impact on eligibility. The trade-off is speed: a property valuation is required, so drawdown takes two to three weeks rather than days.
Unsecured working capital loans are assessed on the business's trading performance rather than any asset. Specialist lenders review six to twelve months of business bank statements, assess monthly turnover and consistency, and make a credit decision within 24 to 72 hours. No property is required, but a personal guarantee from the director is typically needed. Rates are higher than secured equivalents because the lender carries more risk.
Which Product Fits Your Business
Match your business type to the right cashflow product
- ✓B2B business with outstanding sales invoices on 30-90 day terms → invoice finance (factoring or discounting)
- ✓Retail, hospitality, e-commerce or any business taking card payments → merchant cash advance
- ✓Business or director owning property with equity → secured working capital loan (fastest resolution; lowest rate)
- ✓Trading business with 12+ months clean bank statements, no property, no invoices → unsecured working capital loan
- ✓Business needing ongoing revolving facility that grows with turnover → invoice finance
- ✓Business needing a one-off lump sum quickly → MCA or unsecured loan
- ✓Business with HMRC debt or tax bill driving the cashflow pressure → consider dedicated HMRC tax finance
Many businesses find that a combination of products works best. An established B2B business might maintain an invoice discounting facility for day-to-day working capital, supplemented by a short-term unsecured loan to cover an unexpected capital expenditure. A retail business might use a merchant cash advance seasonally to fund stock ahead of peak trading. A specialist broker can structure multi-product arrangements that minimise cost and maximise available capital.
FAQs
What is a merchant cash advance and how is it different from a loan?
A merchant cash advance is not technically a loan. The provider purchases a percentage of your future card sales at a discount. You receive a lump sum and repay it through a fixed percentage of your daily card transactions until the total amount (the advance plus the provider's fee) is repaid. Because repayment is tied to revenue rather than a fixed monthly sum, there is no fixed repayment date and no default risk on individual payments if card sales fall.
How quickly can cashflow finance be arranged?
Merchant cash advances can be arranged and funded within 24 hours for businesses with three or more months of card processing history. Unsecured working capital loans for established businesses draw within 24 to 72 hours. Invoice finance facilities take three to seven working days to set up but then fund each invoice within 24 hours. Secured facilities against property draw in two to three weeks.
Can I use cashflow finance to pay staff wages?
Yes. Any cashflow product can be used to cover payroll. There is no restriction on the use of funds for legitimate business purposes. An unsecured working capital facility or merchant cash advance is the fastest route if payroll is the immediate priority.
Will using cashflow finance affect my credit rating?
A hard credit search will be conducted at the formal application stage for most cashflow products. If you manage the facility well and make repayments on time, this has no negative effect and can improve your business credit profile. The initial search may cause a temporary minor reduction in credit score, but this is typically insignificant for business credit assessments.
Is cashflow finance the same as an overdraft?
They serve a similar purpose but work differently. An overdraft is a revolving credit facility from your bank with a fixed limit, reviewed annually, and often callable at short notice. Invoice finance and MCA are tied to your revenue rather than a fixed limit, grow with your business, and are provided by specialist lenders rather than your business bank. Cashflow finance from a specialist lender is often faster to arrange and more flexible than a bank overdraft, particularly for businesses with adverse credit or without a long banking history.