Improving your business cash flow is much easier than you may think. If you are a business that invoices clients and has to wait up to 90 days to get funds then find you are doing it tough then there is an easy option available to you.
The type of finance this article is referring to is often known as factoring finance or receipt finance, debtor lending, debtor finance, invoice discounting or cash flow financing. No matter what the name the type of loan is the same and this is how it works:
- A business sells (assigns) its accounts receivable (unpaid invoices) to raise working capital.
- Often factoring is known as the “credit card of business”, as it operates in principle much the same way as a credit card does for consumers. When a retailer sells a product or service to a consumer, who pays with a credit card, the credit card company (the factor) purchases the debt from the retailer at a discount (merchant fee) and the credit card company collects the debt from the consumer (debtor).
- In business, when a company sells products or provides services to another business on credit terms, payment of the account is controlled by the customer. The selling company or service provider cannot predict when the invoice will be paid, even though credit terms may have been agreed. When payment is slow or delayed Cash flow is affected as a result growth of the business is constrained.
- Historically businesses have relied on an overdraft facility to provide working capital. Unfortunately, overdrafts are an inflexible form of financing – an overdraft limit is determined by the bank and it invariably relates directly to the collateral security available or being offered.
- With a factoring facility the available funding is linked directly to the sales thus ensuring that a business is able to take up those large orders allowing the business to grow. It is an independent source of income that is not reliant on other security such as real estate.
For further information on increasing your business cash flow contact your financial advisor or call Katherine Quirke from One Stop Loans Store on 1300 125226