Invoice financing is about accessing tomorrow’s cash today. Instead of a small business having to wait 30+ days to be paid by their customers for goods or services delivered, invoice finance allows them to access up to 90 per cent of the amount invoiced to their clients upfront, with the balance less a small fee received when the client/debtor pays their invoice.
Businesses can typically access up to 90 per cent of their sales revenue within 24 hours of issuing the invoice. Unlike more traditional business loans there are no ongoing repayments back to the financier as they are repaid when the debtor makes payment of the invoice/s.
Unfortunately, the reality is the majority of small businesses don’t know the best way to use the funding they receive from their invoice finance facility. Using your funds efficiently is the key to providing the environment your business needs to succeed, as well as avoiding a recurrent cash flow problem in the future.
So, how can you make the most of invoice funding for your business?
1. Figure out your needs
You need to prioritise your cashflow needs. If you’re running behind on payroll, tax or debt that should be taken care of first. When you have the basics covered, what other areas would benefit from a cash injection? Often our clients chose to increase inventory levels and purchase more supplies to generate additional sales.
2. Don’t splash the cash
You want to use your cashflow wisely and satisfy opportunities without wasting it on areas that are unlikely to deliver a return on investment. Focus on nailing the basics first and then invest in riskier growth initiatives if your cashflow allows. Invoice finance is also one of the best ways to go about funding a new venture because, unlike a bank loan, there are fewer limitations on what you can use the money for.
3. Be patient and calculated
While invoice financing is one of the best ways to improve your cash flow, both immediately and in the long run, it is not a miracle. You need a clear, patient mind to be able to figure our priorities and reign in aggressive spending. Don’t rely on the cash generated from finance to run your business on its own.
4. Eyes on the prize
While solving short term cashflow issues may be the immediate priority, success means planning for the future. Invoice financing is an opportunity to free up capital for meaningful, longer-term strategic investments. Consider investing in areas that will build your brand and efficiency beyond just paying suppliers and securing inventory.
5. Keep your team in the loop
Your staff are often your greatest asset. Keep them involved in the decision-making process. Service-facing staff are the eyes and ears of your customers. Employee morale is another qualitative measure that goes beyond the bottom line. Invoice financing should improve the holistic health of your small business, from the financials to processes and to people.
There is a broad range of businesses that can benefit from invoice financing, particularly those that have credit terms of more than 30 days or more. Essentially any business that invoices another business for goods or services on credit terms.