With access to business funds continuing to be difficult for SMEs, the time has come for businesses to seek alternative finance solutions in order to grow. No matter how high a company’s sales levels are, if there is poor cash flow management, a business is likely to struggle.
Traditional bank funding, such as an overdraft, can often be limiting to business funding and growth. It is a static form of finance, and without additional security, limit increases can be difficult to obtain. It does not take into account the financial stability or growth of a business. Many companies are now turning to invoice finance to fund their daily activities.
Using invoice finance
An asset that companies often overlook and do not consider when choosing a funding solution is their debtors. Invoice finance releases the working capital tied up in a company’s receivables ledger, giving them a cash injection that can be utilised within the business. Unlike an overdraft, property security is not required. As a company sends its invoices to their customers, it sends a copy to the financier, who will fund up to 90% of the value of the invoice within 24 hours. The remainder of the funds are made available when the customer makes payment to the financier, less an administration cost.
Corrie Hassan, Managing Director of 180 Group, stated that ‘It is extremely encouraging to see the shift in attitude in relation to invoice finance. It is now being recognised as the valuable form of finance it has always been, and businesses are starting to understand the huge benefits it can bring.’
The increased working capital allows companies to make more accurate financial predictions, to plan ahead for business expansion and gives the opportunity to quickly react and adapt to any changes within their market. Invoice finance is a rolling line of credit against a company’s receivables, so as a company’s sales grow, so does the level of funds available to them.
A growing industry
The invoice finance market in Australia has grown to over $63 billion up to the end of March quarter 2013. Over the past 10 years, the market has grown by almost $50 billion and continues to grow – with a growth rate of 2.1% in the past 12 months.
Over 56% of business executives expect cash flow to be an issue coming to the end of this financial year, according to Dun & Bradstreet’s latest national Business Expectations Survey. Outstanding accounts receivable are thought to be the biggest barrier to growth, according to 28% of respondents. D&B’s latest Trade Payments Analysis found that businesses are now waiting almost 8 weeks to be paid by other companies. The average for business to business payment times has risen to 55 days during the first quarter of 2013, up 3 days on the previous quarter. In an environment where business expectations remain at a low, a slow-down in cashflow can impact on the ability to cover operating costs, along with hindering investment to grow the business.
More and more businesses are turning to invoice finance to build-up their cashflow in a bid to achieve long-term success.
Invoice finance is broken down into two areas: factoring and invoice discounting. Invoice discounting is offered by many of the leading bank lenders but the companies that are often in most need of it can find it difficult to be approved for this type of funding. INDI is 180 Group’s unique invoice discounting product that makes a confidential facility available to companies who would not normally qualify.
It uses advanced, real-time technology to make funds available to companies within 24 hours of invoicing. Traditional invoice discounting facilities often release funds at 30 days. INDI’s state-of-the-art technology automatically reconciles a company’s account daily, so timely month end reconciliations, which are a common deterrent to invoice discounting, are completely eliminated.
Who can invoice finance benefit?
Invoice finance can be utilised by companies that have business-to-business sales, and give traditional credit terms. The industries that 180 Group has helped include manufacturing, wholesale, and recruitment.
‘A true success story for me is seeing a client of 180 Group growing and stabilising into a self-funding business who no longer needs our assistance. We are in the business of helping Directors meet their companies’ full potential,’ said Mrs Hassan.
180 Group has helped companies to bridge the gap between payments and receivables, to give that extra cash injection to expand business premises and for new product development. It has even helped with eliminating creditor pressure and maintaining ATO obligations. 180 Group recognises that every business is different, and therefore is able to tailor a solution to suit businesses’ needs.
Planning for the future
Cashflow management dictates whether or not a business will be able to survive in increasingly competitive markets. Various funding solutions offer a range of options for businesses to maintain cashflow at a level required at any given period in time.
Accurate cashflow projections help identify problems before they can materialise, along with bringing awareness to any potential lags in cashflow during quieter periods.
As a company’s debtors are the only security required, invoice finance can often be used alongside other forms of lending to create a complementary funding solution for businesses. The key at this stage is realising the potential of a business to succeed by utilising all of its available assets.
180 Group, the business cashflow specialists
