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The ins and outs of invoice financing

- November 6, 2020 2 MIN READ

Are cash flow gaps preventing you from taking up business opportunities? Small Business First gives you the lowdown on invoice financing and explains why it should be on your radar.

Late payments are the bane of small business. As the coronavirus crisis continues to put pressure on the nation’s business owners, concerns around cash flow are at an all-time high. MYOB’s latest Business Monitor report found 38 per cent of small to medium-sized businesses feel financially stressed due to late payments. In comparison, 42 per cent are worried about cash flow.

Of course, this is nothing new; late payments are such an issue that the Australian Small Business and Family Enterprise Ombudsman has called for 30-day payments to be mandatory. At the same time, the new Payment Times Register will name and shame those corporations that fail to pay their small business suppliers in a timely fashion. Still, small businesses continue to feel the pressure, according to MYOB, concerns around cash flow rose by 12 per cent in the last quarter.

While e-invoicing has been touted as a solution to get businesses paid faster, there is an alternative for companies struggling with this pain point. Invoice financing could be another way to inject capital back into your business so it can continue to grow throughout the crisis.

What is invoice financing?

Invoice financing is a loan secured against your outstanding invoices. The beauty of invoice financing is it allows you to access the cash tied up in your unpaid invoices. You may have heard of it under its other moniker- Debtor Financing.

How does it work?

Much like a bank overdraft, invoice financing supplies your business with a line of credit. However, there is a big difference. Rather than using security such as your home to facilitate the loan, invoice financing uses your unpaid invoices as security. It’s a little like getting a cash advance as invoice financing allows you to access money tied up in outstanding payments. It smooths out your cash flow, as you don’t have to wait for your customers to pay you to access the funds.

Miles Jackson, the cofounder of Coles Clark Guitars, know all too well the issues late payments can have on a business. It’s why he chose to go for invoice financing to help ease the pain.

“I’d definitely recommend invoice finance to other small businesses,” Jackson said. “For Cole Clark, it has been very handy. Working with Scottish Pacific is very seamless. They get to know us and our business well.”

How long does it take to apply?

Unlike some financing methods which can take weeks to approve, your application for invoice financing can usually have a fast turnaround – with funding becoming available in as little as 24 hours. An application to see if your business is eligible could take as little as 10-minutes and can be completed online. The criteria are also far less stringent, allowing startups and new businesses to apply as long as they have turnover. Funding amounts can range from $10,000 to $10 million ensuring small and medium enterprises of all size can have their needs covered.

Launched in 1988, Scottish Pacific is  Australia and New Zealand’s largest specialist provider of working capital solutions for small and medium business owners. Find out how  ScotPac can help you. Call Scottish Pacific today on 1300 209 417 or visit their website to find out more.

This article was first published on Small Business First. You can see the original content here.

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