Funding levels? The be all and end all?

Martin Bennison explains why you should look beyond funding levels when choosing an invoice financier.

When your business needs a cash flow boost, invoice finance can be a life saver. It unlocks the value tied up in your outstanding invoices, giving you immediate access to working capital. Initially for many businesses, the primary driver when choosing a financier is simple: “How much funding will I be able to access?”

An effective Invoice Financier should always work with you to ensure your facility is structured to suit your business needs ensuring you get the highest advance rate as possible from your sales ledger – normally between 80-90%.  The higher the advance rate the more cash you may be able to access.  If your provider is also managing your sales ledger and collecting invoice payment from your customers, they are working on your behalf to remove any possible payment issues and speed up collections, releasing as much funding from your sales ledger as possible.  You are paying for this credit control service so the quicker they get your money in then often the less fees you end up paying the funder for borrowing the money as your account balance is repaid quicker.

However, whilst the headline funding level is undeniably crucial – you need enough capital to meet your operational needs – it’s a mistake to make it your sole consideration. In fact, focusing only on the percentage advance rate can lead you down a path that’s less efficient, less profitable, and ultimately, more stressful for your business.

The real unsung hero in the invoice finance relationship, and a key indicator of a truly valuable partner, is Days Sales Outstanding (DSO).

What is DSO and why does it matter?

DSO is a financial metric that measures the average number of days it takes for a company to collect payments after a sale has been made. In simpler terms, it tells you how quickly your customers are paying their invoices.

A lower DSO is always better. It means:

• Faster Cash Flow: Money is coming into your business quicker, improving liquidity.
• Reduced Risk: Less time outstanding means less chance of bad debt.
• Greater Efficiency: Your sales cycle is closing more rapidly.
• Improved Profitability: Cash isn’t tied up in invoices, allowing you to invest it elsewhere.

What’s a normal DSO?

DSO measures can vary by industry and business.  In 2025, UK businesses unsurprisingly are focussing on cost management and hence working to improve their Days Sales Outstanding (DSO), in order to enhance cash flow.  A low DSO, generally below 45 days, indicates a company is efficiently collecting payments, while a high DSO suggests potential cash flow issues.

The payment behaviour of business-to-business (B2B) customers in the UK has remained largely unchanged in recent months, with payment delays still widespread across the market. 51% of B2B invoices are currently overdue,

The standard DSO across industry is 49.6 as at April 2025 compared to April 2024 which was 1.3 days quicker at 48.3 days which suggests that firms are delaying payments and holding onto their cash to meet rising costs.  Coupled with the fact that bad debts account for 7% of all B2B invoices it isn’t difficult to understand the strain business owners are feeling.

Pulse leading the way.

As an Invoice Financier, we know how important it is for our clients to have access to the maximum amount of funding to meet expenses and invest in growing their business.  We put maximum effort into achieving the highest advance rate for our clients because it’s important to our client but equally so is our DSO rate.  We have many examples of clients where the difference that a good DSO rate delivered to their business is clear to see.

We have invested in an excellent client operations team who continue to improve on our processes to ensure we deliver a first-rate service.  We are proud of our reputation for working hard on our clients’ behalf managing invoice collections whilst building effective relationships not just with our clients but also with their customers to ensure that invoices are verified, and any issues are resolved early to speed up payments and improve their DSO.

We are rightly proud of the fact that our average DSO rate across our clients is 31 days which compared to an industry average of 49.6, means that our clients get access to their cash quicker and can use it to grow their business.  This achievement is a testament to our team who work on our clients’ behalf and focus their efforts across the whole ledger not just the largest 3 or 4 debtors.  Our diligence in covering our clients’ whole sales ledger can also be demonstrated in our aged debt statistics.  From an industry perspective 5% of a ledger being classified as aged debt is low; 10% would warrant an investigation as to what is going on and over 10% would be considered a problem.  At Pulse, our expertise in collections means that we have less than 1% aged debt disapprovals over 90 days.  Our aim is not to have old debt as the older the debt the less likely our clients will get the money they are owed.

The hidden cost of high DSO (even with high funding)

Ignoring your DSO and focussing on the amount of funding you can access can have a hidden cost.  Let’s look at some examples:

Funder A offers you a 90% advance rate whilst Financier B offers 80%. On the surface, Funder A looks like the clear winner. But let’s dig deeper:

• Funder A (High Funding, Passive on Collections): They give you 90% upfront. Great! But their collections process is passive. Your customers continue to pay in 60-70 days. Your cash is still tied up for a long period, and the 10% held back by the Financier feels a long time coming. You might even incur additional costs chasing these debts yourself.
• Funder B (Lower Funding, Proactive on Collections): They give you 80% upfront. A bit less, but they have a robust, respectful, and effective collections team. They work diligently to ensure your invoices are paid within 30-40 days. Not only are you getting your 80% faster, but the remaining 20% is released significantly sooner. Your overall cash cycle is tighter, and you’re freeing up valuable resources that would otherwise be spent on chasing payments.

In this scenario, Financier B, despite the lower initial funding, is likely providing a far superior service for your cash flow and overall business health.

In summary, of course funding levels are important but beware of an ineffective DSO rate as this could dilute the funding levels you are accessing leaving you with insufficient cashflow.  Choosing your funder and understanding how they are going to work with you across your sales ledger to put you in the best position that you can be in must be high on your priority list.