Invoice Finance for Small Business in Australia
When you are running a business, most likely you give your regular clients or customers their own credit terms. It depends on your agreement and sometimes the invoice gets paid after 30, 60, or even 90 days. While it helps you maintain loyal customers, giving long credit terms can sometimes affect your cash flow. Remember, you need money to pay for your rent, your employees, and for urgent items that will help your business grow.
If you are not familiar with the different financial solutions for small businesses, you might think of applying for a traditional loan. However, that can be a long process and you don’t have much time. The best solution we recommend is invoice financing. If you are new to this, then this post will provide you with what you need to know.
What is Invoice Financing for Small Business?
Invoice financing is an option for businesses to borrow money against the amount due from their clients and customers. With this solution, you can improve your business’ cash flow and it allows you to pay your suppliers, your employees, and even invest without waiting for your customers to pay their balances.
As for the business or the borrower, they need to pay a percentage of the invoice amount and this will serve as the fee for the money they borrowed. Basically, the unpaid invoice becomes the collateral for financing. Most of the time, the lender will not advance the 100% amount of the invoice upfront to add protection as well.
Factoring vs Discounting Invoice Finance for Small Business
With invoice finance, you can choose either factoring or discounting. This depends on your needs and preference. Let us briefly discuss the following:
With this, the lender has the power to collect full payment from your customers or clients. While it takes a lot of responsibility from you, this might affect your business’ reputation.
This is what most businesses choose as you can still have full control of your sales ledger and collection.
Industries that Commonly Use Invoice Financing
Have you ever wondered which industries or businesses use invoice financing? We have a quick list for you.
- Wholesale and Distribution
Benefits of Invoice Finance for Small Business
We are going to reiterate the benefits of invoice financing to small businesses. And maybe you can consider this as an option to improve your operations.
- Invoice financing for small business is considered more flexible than other forms of business loans.
- Typically, the approval process is faster.
- It is considered a form of quick cash and it essentially helps you improve your business’ cash flow.
- It helps you manage your bills.
When can You Get Your Funds?
After setting up your account, you can get your funds in just a few hours. Again, we would like to highlight the efficiency of invoice financing compared to traditional business loans wherein you have to provide a lot of documents and you need to wait for weeks or months to get approved.
What are the Common Fees and Penalties of Invoice Financing for Small Business?
Before you sign anything, make sure you are familiar with the fees you will incur and the possible penalties.
Termination Fees – If you have a long term contract or agreement with the invoice financing company and decided to terminate it, then you will have to shoulder cancellation fees.
Maintenance Fees – This is to ensure that your account is active or open. Such fees are charged monthly.
Due Diligence Fees – At times, your lender will have to check the background of your customers or clients. This service also comes with a fee.
The rates differ from one lender to another and that is why you have to ask the above first. We actually recommend that you work with brokers so that you can fully understand the process.
Hiring an Invoice Finance Broker for Small Business
Maybe you are asking right now if it is really advisable to get the services of invoice finance brokers. Our answer is a big YES. For most people, this concept is relatively new and the knowledge you have might be limited.
You see, invoice finance brokers spent their time and effort to understand how this works. They should be able to provide you with professional advise on which method your business needs. They will serve as your adviser and can even propose the best financial institutions according to their experience and expertise. With them, you can ask unlimited questions about invoice financing.
How Do You Find the Best Invoice Financing Company?
Apart from working with a good invoice finance brokers, you can also personally ask other business owners for their recommendations. At least with this, you would know what to expect from their services.
Improve your cash flow with the best invoice finance solutions for small business. MHF can help you with your concerns. Set up a consultation with us to know more.