If your business is tackling the cash flow problem then you are not only one to tackle this issue. Only about 50% of small businesses in Australia are generating positive cash flows in a month. This highlights the most important questions that how businessmen clear their overheads, purchase inventory and flowing their business without taking extra debts. The answer to this important question is Debtor financing.
Although Debtor finance includes multiple solutions and its two most usual forms are invoice financing and invoice factoring. Both the firms will offer you the capital without including the long term debts. There are some important factors to be considered while selecting the most optimum finance alternative for your business.
Invoice factoring can be exercised similarly except that invoice factories organization ensures to take up the responsibility of configuring your invoice and will instantly communicate with your customers for the sake of doing this. Whosoever takes the risk of the unpaid invoice as granted relies on both whether you opt a recourse or non-recourse service.
Invoice financing organizations deliver advance cash based on your unpaid invoices. You can receive the minimum amount between 70-90% of the amount owed, upfront in a day. The remaining amount excluding financing company fees will be given once the invoice has been paid.
Benefits of Debtor Financing
Ordinary loans include long term debts which usually undertaken on the balance sheet for over a year. Debtor financing enables you to track the money that you previously owed which implies you could able to access extra capital only when you most need it. Debtor financing retains the easiest qualification requirements primarily when compared to business loans and overdrafts. This makes the easiest alternatives for businesses with lower revenue or credit ratings. In comparison with other types of business lending, debtor financing delivers a smooth flow of revenue without involving interest rates or secured assets.
Selecting the Feasible Alternative for Your Business
Both these solutions will be feasible for your business and also for those customers who need long term payments. Invoice financing is the most crucial factor for your small business such as freelancers who cannot wait for their revenue. It is even a good option for businesses that are leading and retain large customers such as government agencies or corporations.
Invoice factoring also helps you in the above situations. It delivers duty to the finance manager for collecting your cash payments and managing your sales ledger. This clearly shows the bonus for everyone who do not want to spend their payments on time. Few customers might not wish show that your invoice is managed and payments are collected by some other third party. Due to this, financing is usually preferred by businesses that are looking for full confidential and control over the sales ledger operations.
Few other important pointers of Debtor Financing
- Retain a precise ROI plan in practice– It is suggested to ensure you to know how exactly this capital will flourish your business before requesting an advance invoice. The immediate step is to transpose debtor finance services which enable you to plan your future expenses most accurately and confidently.
- Put your cash to work-If you retain extra capital with yourself then it would be a better option to save your money in the business which yields high interest. In this manner, you can earn a high-interest rate on every dollar you spend and can even withdraw your funds whenever needed.
- Carry out regular cash flow forecast-Cash flows forecast could emphasize any cycle of your business and enable you to identify the most feasible cash flow shortages in the near future. This important information will help you to manage your staffing, borrowing period and accelerate your market efforts during lulls.
(Download PDF: How to Accelerate Cash Flows with Debtor Financing)
Max Margin Accountants is a registered accounting firm based in Melbourne. We specialize in helping our clients with a full array of Business Advisory, Taxation and Accounting services. We help businesses in all industries and sectors including Automatic Mechanic, Hotel and Bar, Barber & Hair Dresser, Car Wash, Home Builder & Architecture, Cafe and Coffee Shop, Cleaner, Computer & IT Industry, Family Day Care, Gym and Personal Trainer, Small Businesses, Medical Practitioner, NDIS Business, eCommerce, Property Investors, Tradies and Taxi Drivers.