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Surviving the credit crunch with debtor finance
A major effect of the GFC is that businesses can no longer rely on banks for financing to help smooth out cash flow shortages. They are also finding that their customers are taking longer to pay for goods and services. Businesses in Australia may therefore need to consider other forms of business finance solutions, such as invoice financing.
An invoice finance facility (also called factoring or business cash flow finance) can provide businesses with a flexible line of credit against receivables or unpaid invoices. You can receive up to 90% of the value of unpaid invoices within 24 hours, meaning that your business doesn’t have to wait up to 30 days or longer to access cash once the customer has made payment.
What this means is that businesses has access to a flexible, reliable supply of working capital when needed, to improve cash flow and grow, free of the constraints commonly encountered with other forms of cash flow finance (e.g. overdrafts).
The types of businesses most suited to invoice finance are those that supply goods on credit (for example, manufacturers and wholesalers) and businesses that have large labour costs (for example, recruitment or security firms).
The major differences between invoice finance and traditional business finance through the bank is that invoice financing decisions are based on the credit-worthiness of the customers, whilst a bank makes credit decisions based on the financial history, cash flow and security of the business.
Invoice financing is not a loan, so no liability appears on the balance sheet. More importantly, invoice financing decisions are made within days or hours, while banks can take much longer.
Reasons why invoice finance is used
Benefits of invoice finance
Disadvantages of invoice finance
It’s important that businesses consider whether invoice finance, like with any form of business finance, is suitable to their business and carefully access how the accelerated cash flow is to be effectively utilised in the business. To find out more about invoice finance and other business finance solutions, speak to one of our mortgage brokers on 1300 55 10 45 or visit www.intellichoice.com.au to find out how we can help you grow your business.
Visit us at: www.intellichoice.com.au
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