Invoice finance & business cash flow

Manage business cash flow better.
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Invoice finance & business cash flow

An ongoing challenge for small businesses in this current economy is managing business cash flow. According to Xero Small Business Insights, only 52% of Australian small businesses were cash flow positive in April 2019.

A common reason noted for these cash flow challenges is that some clients are slow to pay their invoices, which is putting real pressure on businesses to meet their expenses. Another problem caused by unpaid invoices is the fact that it ties up cash that could be better used to grow the business.

In what could be construed as even worse news for domestic small business owners is the fact the Australian Bureau of Statistics reports that more than 60 per cent of small businesses fail within the first three years. Of these insolvencies, Australian Securities and Investments Commission (ASIC) report that almost half of the businesses suffered from inadequate cash flow or high cash use.

Clearly, ensuring regular cash-flow is a major challenge for small businesses regardless of the industry in which they operate.

Whether it’s to help your business grow faster or to protect against difficult times, effectively managing business cash flow should be a high priority for Australian small businesses.

Even the most efficient and successful business can suffer from cash flow challenges at times. Being prepared for the inevitable economic downturn, and planning for events before they happen is a key part of building a sustainable business. Companies who have planned for cash-flow challenges within their yearly budgets, for instance, are better placed to bounce back from setbacks.

Why your business needs a cash flow management plan

Together with following best practice receivables management practices, to help with getting invoices paid faster, all Australian small businesses should have a solid contingency plan in place to deal with cashflow challenges.

Some potential contingency plans include:

  • loans or additional equity investment from the business owners
  • paying your suppliers later
  • drawing against a finance facility.

Know the terms

The terminology for borrowing funds against unpaid invoices can sometimes be a bit confusing to get your head around so here is a brief summary:

Borrowing against a single invoice is known as single invoice finance, selective invoice finance, single invoice discounting or selective invoice discounting.

Borrowing against the invoices of one, multiple or all customers is more commonly known as invoice finance, debtor finance or invoice discounting.

Furthermore, with invoice factoring the factoring provider takes the role of managing the sales ledger, credit control and chasing customers for invoice payment. With invoice finance, the borrower retains control of the accounts receivable ledger, which often leads to maintaining better customer relationships.

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