In Debtor Finance, International Trade Finance, Invoice Finance, Port to Port Finance, Purchase Order Finance, Trade & Inventory Finance

Invoice Finance is quickly growing again as a preferred method for Australian small and medium-sized businesses to finance their day-to-day operations and manage cash flow. In light of recent shutdowns, it is expected to become even more popular.

Unpaid invoices are the main cause of cash flow pressure. Invoice Finance converts unpaid invoices into instant cash flow, overcoming the cash gap between invoicing and payment which can often extend to 60-90 days.

By providing access to the cash from sales immediately, the client can maintain improved control over cash flow to meet day to day expenses, and release additional funds for growth.

  • How does it work?

In a typical arrangement, invoices are uploaded through an online portal directly to the Invoice Financier, who will then release between 70-80% of the face value of the invoice for drawdown, usually the same day.

This injects cash back into the business to finance day to day expenses e.g. tax, wages and new sales or inventory purchases. The balance of the invoice, less a small administration fee, is returned to the client once payment is made by the Buyer.

The invoice financier can also provide a fully outsourced accounts receivable service, whereby they can send monthly statements, undertake collection calls and conduct reconciliations on the clients’ behalf, leaving them to allocate their valuable time to the tasks they are good at.

  • What type of businesses are suitable?

Invoice Finance is suited to businesses selling to other businesses (i.e. B2B) on credit terms e.g. 30 days EOM and with annual credit sales in excess of $100,000 per annum. Businesses that experience sales seasonality, fast-growing businesses, smaller under-capitalized businesses, business owners without security to offer, or those in which Buyer terms exceed supplier terms, are ideally suited to this type of funding. Industries particularly suited to this type of funding include:

  1. Wholesalers/importers
  2. Manufacturers
  3. Printers
  4. Labour Hire and Recruitment
  5. Transporters
  6. Food and Beverage Manufacturers
  7. IT Service Providers
  8. Textiles – fashion and clothing manufacturers

Why more SMEs are choosing Invoice Finance?

  • Reliable cash flow

In times when market uncertainty prevails, SMEs are particularly exposed to fluctuations in demand and the risk of slow payment or Buyer default. Invoice finance helps absorb this cash flow pressure and accommodate fixed overheads such as rent, wages and tax by injecting a volume of cash into the business.

  • Confidence in decision making

A slow and unpredictable cash flow curtails the foresight necessary for strategic development activities such as future planning, securing competitive trade terms, meeting substantial orders and pitching for new business opportunities. A company held hostage to its cash flow cannot expand and succeed.

  • Flexibility over rigid bank terms

Banks and other financial institutions offer a myriad of cash flow solutions that secure debt on the value of the SME proprietor’s assets (often real estate). However, these arrangements are rigid and require a long-term commitment from the proprietor. Invoice Finance however does not typically require property security, meaning the owner need not risk personal assets to the business or can release the asset to secure other funding. Furthermore, as the facility is linked to sales, it will grow in line with the business to ensure working capital is always matched with the requirements of the business. In addition, this also means that invoice financiers can often look beyond the balance sheet and lend to businesses without the trading history and profitability required by traditional bank lenders.

  • Professional debt management

Some Invoice Finance products offer SMEs the added benefit of debt collection and administration, in some cases eliminating the expense of employing a full time or part-time account clerk. Representing the SME is an efficient and diligent non-bank financier who understands the SME market and can objectively manage bargaining Buyers.

  • Time management

Outsourcing debt management not only frees up time and expense but creates time for business operators to focus more on operations and development opportunities.

  • Bottom line protection

Often SME operators offer generous settlement discounts that reward creditors if payment is received within the specified trade terms. This can result in thousands of dollars every year that is effectively absorbed by the SME’s profit and loss statement. Likewise, having timely access to cash can allow the business to take advantage of sales opportunities or opportunities on the purchasing side e.g. bulk or early settlement discounts offered by suppliers which help improve margins. In some cases, the benefits gained from taking advantage of these opportunities can more than offset the cost of the facility.

  • Funding for growth

For many businesses, being able to access funding for growth remains one of the greatest hurdles. Smaller, younger businesses often do not have the security, profitability or trading history to access it from traditional sources, whilst established businesses may go through costly (but often necessary) restructuring which impacts on the balance sheet and profit and loss. Invoice Finance, however, looks primarily at the strength of the Buyer book and the quality of the Buyers, mitigating some of the restrictions traditional lenders may place on limits. Furthermore, as the funding limits are linked to sales, funding will grow in line with sales, meaning it is the ideal funding arrangement for growing businesses.

If you, or your clients, need some additional funding support, contact any of us!

Daniel Dunsford
M 0404 723 762
[email protected]
Greg Charlwood
M 0421 006 873
[email protected]
Anthony Ferris
M 0416 347 933
[email protected]
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