Invoice finance is a business funding solution that helps to provide cash flow for growing businesses in an easy and affordable way. If preparing for a busy time of year or securing cash flow to take on new projects, then invoice finance is an ideal solution for growing businesses. Cash flow finance or accounts receivable funding is an unsecured cash advance that you receive against outstanding invoices.
What is your business cash flow challenge?
- your customers are paying invoices at 60,90 or 120 days
- the bank said NO to your business loan
- business cash flow is a constant challenge
- recent capital purchases has restricted your cash flow
- your business credit score is unacceptable for bank approval
- the company struggles to meet the payroll
- most business owners would agree that ‘slow-pay’ or ‘no-pay’ customers can be a death knell for a business.
What is Invoice Finance?
It is a form of commercial financing, simple put, its an advance payment against outstanding invoices. Sometimes also known as ‘Accounts Receivable Finance’. Many companies keep their suppliers waiting 60, 90 and in some cases 120 days for invoice payment. Resulting in a crippling effect on small business struggling to meet all its cash flow obligations. Small business finance through your traditional bank is not an option if you highly leveraged. Additionally, for new company’s with no trading history and no assets to offer as additional.
Invoice finance is an ideal tool for cash flow management to access working capital finance leveraging its own balance sheet. Invoice factoring is a similar method to cash flow the business, thereby selling the invoices to a third-party at a discount. Most businesses prefer invoice finance over factoring to keep control of the client relationship and retain the collection process.
What are the benefits of Invoice Finance?
Once your account is approved and set up, the lending company will pay your invoices within 24 hours.
- fast approval
- instant cash
- manage cash flow gaps
- not shown on your balance sheet
- creditworthiness based on your customers
- negotiate better supplier terms
- no financials and no property security
- disclosed or undisclosed options
Cash Flow best practices for growth
If you are going to extend credit to customers, request at least three references and contact them. For slow-paying or no-paying customers, begin collection procedures as soon as they are late. The consequence of delaying trying to collect, will hampers your ability to collect.
- offer a discount for early payment of the invoice
- aim for an upfront deposit to maintain your cash flow
- be proactive and have a process in place to manage bad debt
- keep the communication channels open with your slow-paying customers
What industries suit cash flow invoice finance?
- Labour Hire
- Professional and Consulting Services
How much does it costs?
Yes, getting a bank loan is a cheaper way to cash flow your business. However, if your cash flow challenged and unable to make payroll then factoring your invoices may be your best option. Your factoring rate will be dependent on the following;
- sales volume
- size of invoice
- creditworthiness of your customer
- number of days the invoice is outstanding
- your time in business
- relationship with your customer
How does B2B Payment Behaviour affect your business?
According to a survey completed in October 2017, published by Atradius Payment Practices Barometer 2017 interviewed Australia, as part of the Asia Pacific Region. Despite the country’s stable performance, there were fewer sales on credit terms compared to one year ago. Australia’s GDP growth is forecast to be steady at 2.6% to ease slightly to 2.4% in 2018.
Overdue B2B Invoices
- Compared to their peers in Asia Pacific (89.2%), slightly fewer respondents in Australia (88.1%) reported late payments
- In Australia 42.4% of domestic invoices and 56.2% of foreign invoices remained unpaid at the due date
- The average Days Sales Outstanding (DSO) decreased from 25 days in 2016 to 22 days this year. Among the Asia Pacific countries surveyed, the lowest DSO figure, and well below the regional average of 40 days
Payment duration average
- In Australia payment duration improved from an average of 50 days in 2016 to 46 days in 2017. This is also the shortest credit to cash flow turnaround in the Asia Pacific region this year
- The average payment terms in 2016 stood at 21 days for domestic B2B customers and 23 days for foreign B2B customers.
Key payment delay factors
- 34.3% of respondents in Australia cited buyers using outstanding invoices as a form of financing as the main reason for domestic payment delays
- The second most frequently cited reason for domestic payment delays was insufficient availability of funds (32.9% of respondents)
Protection of business profitability
- With China as a main trading partner, Australians are concerned about risks stemming from the slowdown in Asia. Therefore, 33.8% stated they will increase creditworthiness checks and 29.6% they will increase monitoring of their buyers’ credit risk
- Brexit and US protectionism are a concern for Australian suppliers to increase protection. For Brexit increase creditworthiness checks by 20.6%. Thereby, increasing monitoring of buyers’ credit risk by 24.1%. For US protectionism increase creditworthiness checks by 29.4%. Thereby increasing monitoring of buyers’ credit risk by 23.5%.
- In Australia noncollectable receivables originated mostly from B2B customers in these sectors: construction, electronics, business services and consumer durables
- 34.3% of respondents in Australia cited buyers using outstanding invoices as a form of financing as the main reason for domestic payment delays.