DON’T BE YOUR CUSTOMERS’ INTEREST-FREE LENDER!
In business, we lend OUR money to our customers so they will buy our products and services! (That’s what credit terms are.)
End the stress of endlessly juggling supplier bills and contractor invoices while you wait to get paid – permanently!
Today’s powerful Invoice Finance tools (also called Debtor Finance) let you use the money earned by your business to grow your business.
They give you access to funds you’re already owed – so you can use that money when you need it – not when your customer gets around to paying you.
“Debtor Finance enabled our business to grow 50% per year for 5 years, and expand successfully into a 3 state operation.”
TALK TO A WORKING
CAPITAL STRATEGIST
IT’S NOT HOW MUCH CASH YOU MAKE – IT’S HOW IT FLOWS
Many small businesses end up being unrecognised – and often unpaid – finance providers to their customers because their industry is structured around long-established, widely-accepted credit terms.
30 day terms, 60 day terms – and even sometimes 90 day terms – operate in industries from construction to consulting.
These terms don’t just cost small business operators in time and stress – they ALSO substantially limit their operators’ ability to run their business efficiently. When you have long and stressful cash gaps between when you pay for your inputs and when you GET paid, it almost doesn’t matter how good your in-house cost management disciplines are.
Debtor Finance (also called Invoice Finance) is a practical, low-risk business financing tool that enables you to access the money you’re owed as soon as you invoice – not later. Today’s easy-to-manage tools can make a massive difference to your business results AND your stress levels.
WHO CAN BENEFIT FROM DEBTOR/INVOICE FINANCE?
NO AMOUNT OF "BETTER CASH MANAGEMENT" CAN FIX YOUR INDUSTRY’S STRUCTURAL CASH GAP
All the administrative discipline in the world can’t change the impact of “baked-in” credit terms with long payment periods.
Long credit terms will still have you waiting and waiting for a big customer to pay a big invoice – while payroll still has to be made, the ATO wants their due, and your suppliers have to be paid to buy materials for your next job.
Even good businesses that show excellent profits at the end of the financial year can go through recurrent, stressful, productivity-killing periods of cash flow drought.
THE COSTS OF THE CASH TRAP ARE HEAVY AND CUMULATIVE
If you don’t have sufficient working capital in your business, then you can end up:
- Not being able to pay suppliers on time – and possibly being put on credit hold.
- Constantly juggling expenses and trying to make it through the week.
- Not being able to take advantage of bulk purchase and early payment discounts.
- Not being able to invest in up-to-date equipment and infrastructure.
- Missing out on new business opportunities that need money to access them.
- Not being able to action business innovation.
- Not paying YOURSELF for all the work you do.
DEBTOR/INVOICE FINANCE – A KEY TOOL FOR ESCAPING THE CASH TRAP
Today, Debtor Finance is a powerful, easy-to-use financing tool for any business operating in an industry that has a structural cash gap.
It is NOT “taking out a risky loan” that “creates another big debt” – it simply unlocks money that you’ve already invoiced your customers for. So it’s low risk and low cost compared to other forms of cash flow finance.
AN INVOICE/DEBTOR FINANCE EXAMPLE
Let’s say that you’re using Invoice Finance (also called Debtor Finance) to access cash now on 30 day or 60 day customer invoice payments.
Using this invoice finance tool, let’s suppose you’re paying an interest rate of 12% per year plus a fee of 1% for each invoice “mini-loan”. So if your customer’s invoice is on 30 day terms and they pay promptly, then your costs are 1% in fees and 1% in interest (2% overall).
On an invoice of $10,000, that’s $100 in fees and $100 in interest.
That $200 will put $8,000 in your bank account today – which you can use today to buy stock in bulk or upgrade a computer. (When your customer pays, the $200 cost is taken out of the $2,000 balance and the remaining $1,800 goes into your bank account.)
Whether that’s “expensive” depends on the return you get on what you spend.
Debtor finance tools today are integrated with accounting tools like Xero and QuickBooks – so there’s no extra manual paperwork for approvals.
(There may be a small additional administration cost within your business. You need to think about how much time it takes to reconcile customer payments – and what to do if your customer pays late?)
With the right cash flow tools for your business, you can…
- Decrease the stress of endlessly juggling supplier invoices and payroll while you wait for customers to pay you.
- Increase the amount of available cash you can access to grow your business.
- Increase your business productivity.
- Invest in better tools and infrastructure.
- Take advantage of new business opportunities.
- Have more time to work ON your business, not just IN it.
IS YOUR BUSINESS STUCK IN A CASH TRAP?
Talk to us about how you can get back in the driver's seat
TODAY'S INVOICE FINANCE TOOLS ARE AUTOMATED AND EASY
You don’t need to “do another loan application” when you need funds – or wait weeks for approval each time you raise an invoice.
You simply invoice your customer in your online accounting system – and your finance provider puts the agreed percentage (60% – 80%) of that invoice amount into your bank account straight away. They pay you the balance (minus fees) when your customer pays.
TRADITIONAL BUSINESS FINANCE DOESN’T MEET TODAY’S SME BUSINESS NEEDS
Traditionally, business finance was provided by either:
- The big 4 banks – who typically want personal assets as security, regardless of business performance.
- The “bank” of family and friends – loans that come with emotional overheads and massive risks to friendships and relationships if something goes wrong.
Both sources can be enormously limiting if you’re trying to grow your business and build a better future for your family.
RESPONSIVE BUSINESS FINANCE IS SUPPLIED BY ENTREPRENEURIAL BUSINESS THINKERS
The same entrepreneurial types who brought us the Internet, eCommerce and Cloud-based accounting tools have ALSO developed a whole range of smarter, SME-friendly finance products.
These products are specifically designed for smaller businesses. They’re smarter, more flexible, more accessible – and overall more responsive to SME business finance needs than traditional finance sources.
WHICH DEBTOR’S FINANCE PRODUCT SHOULD YOU CHOOSE TODAY?
NONE! (Not without doing the right preparation and planning.)
The starting point for a powerful, adaptable business finance toolkit – one that grows your business – is a fast, expert cash flow analysis that delivers you a straightforward Working Capital strategy.
You wouldn’t buy a truck without knowing what load it needs to carry – and the same principle goes for Responsive Finance.
So find a business financing provider who starts by asking about your business needs and goals (not “how much you want to borrow”.) Once you have a clear, practical strategy fit for the long term, you will know what your business need.
THEN you can choose a Debtor Finance product that will suit your business.
Martin Cattach is an expert Working Capital Strategist
Over more than 15 years in the business finance field, Martin has analysed the finances of thousands of businesses.
His prior experience in the finance industry, Information Technology AND small business uniquely equip him to assist SME businesses to select and implement the best finance solutions for their needs.
Martin will quickly built a Cash Flow plan that will take the financial stress out of your business operations and free up the funds you need to grow your business impact.
TALK TO A WORKING
CAPITAL STRATEGIST
WHO SHOULD (AND SHOULDN’T) USE DEBTOR FINANCE?
Debtor Finance works well for those businesses who have a long lead time between purchasing their inputs and getting paid for their work.
It’s useful for industries that are growing including:
- Construction
- Manufacturing
- Transport
- Wholesale
- Fashion
Debtor finance is generally NOT suitable for:
- Sunset industries where growth is trending down
- Short payment cycle industries such as hospitality
FREQUENTLY ASKED QUESTIONS
The costs vary depending on the product and your strategy. Typically, you’ll pay a single, up-front loan establishment fee, plus a monthly service fee.
On top of that will be interest on the invoices you raise – which applies only until your customer pays you.
There is no such thing as a free lunch. Yes, there IS an administration overhead – because you need to reconcile customer payments, loan fees and loan amounts. It’s like running a shadow ledger.
This happens – and while there is a process to go through, it can be well worth doing.
The responsive finance product range is developing rapidly so I recommend:
- reviewing your Working Capital and Finance strategy when daylight savings changes over (every 6 months).
- writing an exit plan as part of your initial Debtor Finance implementation strategy.
Essentially, Debtor Finance is about handing over your debt collection to a third party – the end result is that your customers pay that third party finance provider.
This can be either “disclosed” – which means that your customers know about the arrangement.
Alternatively, non-disclosed Debtor Finance is a product where the finance provider is undisclosed and the customer sees themselves as paying “you”.
Both are good tools – DEPENDING ON YOUR NEEDS AND YOUR BUSINESS.
So make sure you get good advice and choose the right product – because you can end up with a non-trivial changeover workload down the road if you choose the wrong type.
Perhaps – some products allow you to use “partial ledger finance” – and borrow against just some of your customers (perhaps the big customers who demand long credit terms). Other products will take over all your Debtors.
Yes. That’s why you need to:
- Be strategic about how you use the extra funds you gain access to – use them to grow your business.
- Consider a price increase to cover the extra costs – after all, your customers are essentially borrowing money from your business.
NO! Debtor Finance will NOT help – and it could well make things worse. It works when you have predictable, reliable customer payments on 30-60 day credit terms.
