Whether you’re new to business or have been around the block, you’ve probably noticed that customers are often slow to pay and cash is sometimes not as abundant as you would like. Invoice finance can deal with both these challenges, and offers a smart tool for maximising the flexibility of your business.
Quick takeaways if you’re in a hurry
- If you invoice your customers you could be using invoice finance
- Invoice finance is flexible to a wide range of needs and situations, and can be adapted for both small and large cash flow requirements
- Keep debtors out of any security agreements for existing finance arrangements and you should be able to boost your cash flow with invoice finance.
Read on: Cash in on the benefits of invoice finance[estimated reading time: 5 minutes]
Those who haven’t used invoice finance are often unclear about what it is. But those who have benefited from it rarely miss a chance to praise both its flexibility and its practical applications. Invoice finance is a great tool to have in your financial toolbox. Here’s some detail on how it works and how you can use it.
How invoice finance works
You invoice your customers when you have delivered a product or service. Your customer then has a number of days to pay the invoice but your business needs the cash straightaway. What do you do? Use invoice finance.
With invoice finance you sell your unpaid invoice to a finance company, like Fifo Capital. The finance company then advances you a percentage of the invoice value – usually between 80 and 90%. When the invoice is due to be paid, your customer pays the finance company directly and they deduct their fee and then pay you the remainder of your balance.
Depending on the finance company, you can choose to finance a single invoice or a group of invoices. This flexibility is great to allow you to match your finance to your needs exactly, ensuring you can finance your opportunities while avoiding the cost of unnecessary debt.
What are the benefits of invoice finance?
- Invoice finance is quick to set up and deliver
- You are effectively borrowing money you’ve already earned, so you know when your customer pays their invoice your debt is cleared
- You only require your debtor as security against the finance, so it won’t conflict with existing or new finance arrangements
- Because the debtor works as security, the amount you borrow can be more flexible. You can choose to finance single or multiple invoices depending on your business need
- Your finance agreement only lasts until your customer pays your invoice
Who can benefit from invoice finance?
Invoice finance can work for any business that invoices its customers. It’s particularly effective in situations where a business needs fast access to cash for a short period of time, especially if you don’t want to impact existing finance arrangements.
Here are some situations where invoice finance can really help:
- Managing day to day costs if your business finds itself short of cash
- Dealing with frozen or reduced funding from the bank – invoice finance could give you time to find a long term solution without experiencing a cash flow crisis
- Dealing with a change to your security rating from an existing finance provider
- Seizing a growth opportunity when you don’t have the cash to make it happen
- Bridging the gap between delivering goods and receiving payment: this can be especially important in industries like labour hire if you have to manage weekly pay cycles
- Funding an internal project or opportunity
- Dealing with cash flow fluctuations in a seasonal business
- Providing funding if traditional lending facilities can’t help.
Plan for tomorrow
You may have a great cash flow position today but it’s difficult to be certain about tomorrow. The fact is that many reasons for cash flow issues are outside an individual business’s control. These include customers failing to make payments; banks changing your security rating or assessing an industry as more risky; and sudden or unexpected bills like tax bills or GST.
If something happens that could impact your cash position, you’re going to need to move fast to protect your business. You could consider setting up a standby invoice finance facility with Fifo Capital to protect your business from unexpected set backs.
A standby facility is free to set up and you don’t pay unless you access the funds. Having a standby facility means that you can access lending in the fastest possible time because you’ve already completed all the paperwork. So you can rest easy in the knowledge that you can react quickly to unexpected cash flow setbacks, and keep your business operating while you plan your longterm strategy.
Invoice finance is a flexible short term funding tool that can give you fast access to cash when your business needs it. With invoice finance in your toolkit you’re free to take control of your cash flow, and you don’t have to wait for a customer to pay their invoice before you take your business to the next level. Even if you don’t have an immediate need, you may benefit from setting up a standby facility to prepare your business for unexpected cash flow problems. Contact Fifo Capital today and find out more about our unique blend of experience, expertise and smart cash flow solutions.
Invoice Finance, Cashflow Solutions and Business Loans
Fifo Capital are experts in cashflow solutions for small to medium business. Find out more about invoice finance and our fast business loans here: