Safer ways to fund your small business
Cashflow and revenue are the lifeblood of small businesses. However, the two are not mutually inclusive – even when your revenue is positive, your cashflow could be less than healthy.
Revenue generally refers to the dollar signs in your paperwork, while cashflow refers to the actual cash you receive in hand. Making sales and sending out invoices can boost your revenue, but unless the invoice gets paid, your cashflow remains in the red.
Making sales and sending out invoices can boost your revenue, but unless the invoice gets paid, your cashflow remains in the red.
Unfortunately, according to Dun & Bradstreet’s latest business payments index, companies are taking an average 53.4 days to settle their invoices. This means your enterprise could be without cashflow for close to two months.
If your enterprise relies on clients paying their bills on time, you may need to access alternative funding in order to bridge the gaps between payments and ensure your own bills are being paid.
When hunting down the illusive positive small-business finance, you need to be cautious about which funding model you rely on.
Small-business owners taking finance risks
Research shows that small business owners across the globe are relying on high-risk credit cards and high-interest bank loans to maintain positive cashflow.
This is a troubling trend as many of these enterprises are potentially negotiating a minefield of potential revenue disasters.
UK peer-to-peer lender rebuildingsociety.com found that 20% borrowed money on personal credit cards to finance business growth and pay off corporate debts.
Even taking out a company credit card can have a high risk for business owners. A recent article by smartcompany.com.au revealed 17% of credit-card payments are overlooked due to tight revenue.
Credit cards and overdrafts are a concerning choice for small-enterprise owners as they are ultimately a debt. When a business goes into debt, it must make repayments – which means you are just replacing one bill with another and adding another layer of stress to your business.
A safer way to finance your business
Fortunately, there is another way. The Australian debtor finance and invoice factoring industry has become a mainstream option for small-business funding and gives SME owners a safe and secure lending model.
More than 4500 Australian business are making use of invoice finance services, according to the Debtor and Invoice Finance Association of Australia and New Zealand.
This option gives small-business owners the cash in hand they need to fund growth without the risk of losing personal assets or increasing their own debt.
