Invoice funding or invoice finance allows companies to gain immediate cash for their outstanding invoices. It is ideal for businesses experiencing cashflow problems or those who have long payment terms on their invoices.
Why Use Invoice Funding?
Poor cashflow is the number one reason why Australian businesses fail. Sadly, some of these businesses would still be operating if they had been more diligent about monitoring their cash flow and had a plan to cover times when they were short. They may have had debtors but didn’t make use of invoice funding so they could continue to operate.
Research released by the Commonwealth Bank of Australia in September 2016 reported that a lack of cash flow was the primary stress factor for small business owners. Half of the survey’s respondents said they skipped paying themselves a wage one or more times in the past year due to cash flow concerns. The survey also reported that almost half of respondents use credit cards as a means of managing cash flow.
Two Types of Invoice Funding
Invoice funding can be set up quickly and a business can have funds in as little as 24 hours, turning fresh invoices into instant cash.
There are two main types of invoice funding:
Single invoice finance
The final invoice on a large job you have completed unfortunately has long payment terms but you need to pay the staff wages long before the funds will be available. A financier can advance you the majority of the invoice amount immediately so you can pay the businesses expenses.
Regular early payment
A system can be put in place whereby your business receives the funds immediately for regular monthly invoices to reduce the lag time between invoice creation and payment and alleviate ongoing cash flow shortages.
Surviving Cash Flow Squeeze - what else you can do
Make sure you keep on top of your cash flow situation. Don’t let it get to the point where it’s a surprise that the operating account is empty and you have few debtors so invoice funding isn’t an option. Business owners often struggle to find time to do planning tasks when there are so many pressing issues to deal with day to day however cash flow forecasts should be on top of the to-do list. Make time to do your forecast each month and monitor your cash flow situation every day if necessary.
Send your invoices as soon as you can. Whether you invoice when you complete a job, charge a deposit when you win a job or it’s the last day of the month, invoice the moment you can. Make sure your clients know the terms of your invoices and adhere to them. Follow up as soon as payment is late. If you have regular clients who pay for the same service each month, try to get them on a direct debit arrangement so the funds are automatically sent to you on the same day each month so you can plan ahead.
Find out your options
Invoice funding isn’t the only option you have for covering cash flow shortfalls. PTR Finance Group has a range of cash flow assistance programs available. Over the years we have built relationships with a suite of trusted, top tier financiers who provide multiple cash flow options on a business and personal level. If you would like to know more about your options, simply tell us your requirements or call us on (08) 9322 1229 and we will happy to provide you with obligation-free advice.