For this blog in “The Edward Files” I am very lucky to have SME Finance Specialist Ella Bryan contribute with a great article on how one can use “Unpaid Invoices” as a means of lending to your business. If you are in business, you would certainly know what “Cashflow” is one of the biggest challenges and say if you are starting out – or on the edge to jumping in, making sure you have money in the bank account can be a challenge at times!
Unfortunately far before I met Ella, I got into a lot of trouble in this area a year or two ago. Basically – I am a Sales & Marketing Guy and even though I was billing great amounts each month, signing up more clients, I DIDN’T HAVE ANY MONEY IN THE BANK! The simple reason for this is that even though I was using Advanced Platforms like Xero to do my bookkeeping – there was simply no process of making sure people pay their bills on time. I spent a good 6 months getting this back on track. This included ending relationships with people who just didn’t pay and really ensuring I get new clients that mirror my “Fair Pay for Fair Job” type of work ethic.
If I understood this type of technology / lending earlier, it would have been a massive boost to my business and got me out of some hot water. I trust you enjoy this read from Ella. I was very lucky to meet her once at Parramatta Business Chamber (in Western Sydney) and get to work with her on some exciting projects!
Finance Tips for Small Business: Use Unpaid Invoices to Grow Your Business (Guest Blog by Ella Bryan):
We may not want to admit it, but almost all small business owners have at some point experienced Cash Flow stress. Often it is during the early stages of growth when you’re still ramping up revenue, but for many small businesses, it remains an ongoing issue.
This pressure is more likely to be a problem where there is a time lag between selling your products and actually getting paid. This will be a familiar scenario if you have customers that pay on extended terms but you pay suppliers COD, or have other regular commitments such as wages.
As well as the ongoing Cash Flow headache, it can mean business growth is restricted because there is not enough cash to fund new orders or take on new customers.
What’s the solution?
Securing bank finance for small businesses can be challenging, particularly if you don’t fit the standard credit criteria of the big banks.
Small business owners (and their advisors) often assume that without property security, they won’t be able to obtain finance. Property security may mean mortgaging the family home – in many cases business owners have already done this to get the business going. In other cases they may not be willing to take on the risk.
Fortunately, there are other options for small businesses to obtain funding, and one of the best options is to use your unpaid invoices to raise finance.
How does it work?
Called Invoice Finance or Factoring, this form of funding allows businesses to receive cash for their products or services much earlier than normal. With Invoice Finance you do not have to wait for an invoice to be paid by your customers.
Instead, you can receive payment from an Invoice Finance firm who then looks after receiving payment from the customer. The upfront payment you receive is typically 80% of the invoice value, with the remaining 20% (less fees) paid when your customer pays.
How can Invoice Finance help with business growth?
– By having access to cash up front, you can fulfil new orders and grow revenue, and are able to take on new customers / contracts that would not otherwise have been possible.
– Instead of spending time chasing accounts to just get through the next payroll, management time is freed up to focus on growing the business.
– Have the confidence to bid for new jobs / tenders – if you win, use Invoice Finance to fund the cost of this new work.
– The amount of funding available grows with sales, the higher the sales levels, the higher the potential Invoice Finance available.
Importantly, most Invoice Finance providers are significantly more flexible than the banks and can provide funding if a business has been trading for only a short time, has no history of profits, or even has an ATO debt.
Invoice Finance can be an excellent solution for small businesses that need Cash Flow support and want to take their growth to the next level. If you are considering using Invoice Finance, speak to an expert, there are a number of product types that suit different businesses.
About the Author: Ella Bryan is a SME finance specialist, and Director of Fifo Capital (Syd). Prior to running her own business, Ella worked in senior Corporate Finance roles for international banks including Macquarie Bank, Lloyds Plc and HSBC. Ella and her team are committed to providing better and more flexible finance options for Australian small business owners. You can contact Ella on 1300 784 770 or firstname.lastname@example.org
Edward’s Post Blog Commentary:
I like Ella and I she is one ethical operator that speaks the truth and is armed with great technology. Even though the cash-flow in my business is pretty good today, looking back – having access / the understanding of “Invoice Finance” would have been a great way for me to weather the storm and also expand my business faster. It’s a much faster way of getting cash than say a “Business Loan” and there are some great upsides to this.
My advice? Speak to Ella. She will give you an objective answer & some insights to assist you. Many thanks to Ella for the content and yourself for the read!