The Advantages of Invoice Financing

  • 26 October, 2022
  • Sharon Piening

Invoice Financing is an increasingly popular way for business owners to fund daily operations and growth.

There are many Lenders in the market who provide Invoice Financing.

Why Invoice Financing is needed

When you allow customers time to pay, vital cash flow is locked up in outstanding debtors.

While it may look great on a balance sheet, the funds are not available to fund day to day operations or growth, until payment is received.

Invoice Financing effectively unlocks the value of your debtor book and:

  • Brings forward your cash flow
  • Shortens the cash conversion cycle

The small business cash flow crunch

According to the most recent Xero Small Business Insights Report which was released in September 2022:

  • In 2021, the average Australian small business experienced 2 months of negative cash flow in 2021
  • One in every five small businesses experienced more than 6 months of negative cash flow

With increasing costs, rising interest rates, inflation, labour shortages and supply chain issues, it is doubtful the situation would have improved in 2022!

Invoice Financing can help businesses with a quality debtor book and robust internal collection procedures, address some of these challenges.

Key advantages include:

Invoice Financing - No need for freehold security

A significant advantage of Invoice Financing is that it does not require freehold security.

The facility is secured by:

  • Your debtors
  • Directors guarantees
  • Debtor insurance.

Because there is no reliance on freehold security some business owners may be able to free their homes from Lender security arrangements (delivering peace of mind), providing an opportunity for them to use the home to generate wealth.

Fast approval - In days not weeks

Unlike most types of business finance, the information requirements for Invoice Financing are far less onerous and approval is usually forthcoming within 48 hours.

Financial information is still needed, however the application process is more streamlined and faster than traditional forms of business finance.

For busy business owners, knowing where you stand, and having certainty, is important!

Converting debtors to cash

The ability to quickly turn invoices into cash is a major advantage of Invoice Financing.

In most cases, you will have access to 80% of an Invoice value within 24 hours of it being issued.

The remaining 20% is paid when the invoice is collected.

For example, if a business had a debtor book of say $400,000 and provided 60-day terms:

  • The business could access up to $320,000 within 24 hours of the invoices being issued
  • The balance of $80,000 would be available when the invoice is paid by the debtor

Instead of waiting 60 days for payment, the cash injection allows the benefit from the sale to be realised soon after the invoice is raised.

While financing comes at a cost, for many businesses this faster conversion from sale to cash is a “game-changer”.

Funding growth

Access to cash to fund growth is one of the major challenges that fast-growing businesses face.

In most cases, the faster a business grows, the more cash is required to fund that growth.

A major advantage of Invoice Financing is that it can continue to grow with your business.

Industries that benefit from Invoice Financing

While each application will be evaluated on its own merits, industries favoured by Lenders include:

  • Transport
  • Wholesale
  • Equipment Hire
  • Manufacturing
  • Labour Hire
  • Security Services

Why should you use a Finance Broker?

While the power of Invoice Financing is its simplicity, it is important to select the right Lender.

Lender policies and pricing can vary widely.

At The 500 Group, we have access to a wide range of Lenders that specialise in Invoice Financing. This includes those that offer a “low doc” option and/or for whom Tax Debt is not an issue.

If you want to learn more about how Invoice Financing can help you unlock the value of your debtors & bring forward cash flow, get in touch.

Sharon Piening

Invoice Financing Specialist

    Get in Touch