Invoice Factoring And Discounting – The Australian History
Ok so we have covered the history of invoice factoring in our last blog post, so now it’s time to focus on how it all began in Australia.
Factoring saw its beginnings in Australia in the early 1970s initiated by the non bank financial institutions and organizations like the Australian Guarantee Corporation Limited (AGC), CAGA Business Services and Heller Financial Services Limited. When the banking industry was deregulated in the 1980s, the larger banks began to include discounting services, either through a subsidiary or directly to its customers, facilitating the growth of factoring/discounting. The industry grew rapidly through the 1990s, with more banks focusing on invoice discounting. Awareness of this financial tool grew, and cash flow finance was an accepted means of finance with the larger companies.
They preferred it to approaching the banks for an overdraft, as it involved lengthy procedures and restrictions.
In 1994, an industry body called the Institute for Factors and Discounters of Australia and New Zealand (IFD) was formed to encourage factoring and discounting. Since then, the factoring and discounting business growth statistics show a tremendous increase. From just over the $2 billion per annum mark in 1994, the turnover has leaped to $31 billion in 2004. Discounting is even more popular than factoring and is responsible for over 88% of the total market in 2004, compared to just 64% in 1995.
Thus, although invoice factoring and discounting have developed as a cash flow solution, the concept of this financing method continues to be the same. The logistics of how the service is offered has evolved to suit changing market needs as more factors and discounters entered the market. With improved technology, services have become more efficient and quick, making factoring and discounting a very viable financing alternative compared to the conventional banking products.
Increased Cash Flow Promoting Business Growth
A business that provides products or services to its customers usually has to wait to receive payments against its invoices. This can be anything from 30 to 90 days and the business cannot access these funds until the customer pays. If the business were to use invoice factoring or discounting, the factor or discounter would purchase its accounts receivables and provide it the funds it needs long before the invoices are actually due for payment.
By using factoring/discounting, the business gets the funds due against its invoices much earlier than the due date. These funds can be utilized to take care of working capital needs and operational expenses like purchase of raw materials, etc. enabling it to grow its sales. Thus, factoring and discounting can help a business grow. The business also gets funds to pay its rent, taxes, suppliers, employee payroll etc. and improve its cash flow significantly.