Turning debtor invoices into cash

Many businesses are familiar with the stress of waiting for multiple customer invoices to be paid and concerned with the […]


Many businesses are familiar with the stress of waiting for multiple customer invoices to be paid and concerned with the need to extend credit. This is where invoice finance may be a viable option.

The most obvious advantage of invoice finance is the ability to improve core cash flow by converting debtor invoices into cash.

Releasing the brakes

Traditionally, businesses offer debtors a payment period – generally 30 to 90 days – to settle their invoice. Invoice finance provides access to these funds sooner and enables a business to access up to 90 percent of the invoice value immediately after the goods are delivered or services performed.

This is done confidentially, which means customers are unaware that the business uses invoice finance and, more importantly, the business retains control of their account receivables.

Invoice finance can prevent a late-paying customer putting the brakes on your business and provides consistent working capital, allowing you to operate and grow your business. What’s more, unlike a bank overdraft, funds are not limited to your business equity.

Alternative to overdrafts

Overdrafts can be more restrictive than invoice finance and may impede a business’s operations and its ability to grow. Such restrictions, it seems, are prompting many businesses to switch to alternative sources of funding, such as invoice finance.

SMEs exposed to day-to-day or seasonal fluctuations in the manufacturing, importing, recruitment and service sectors are well placed to benefit from invoice finance, according to John Cassar, Head of Invoice Finance Product, NAB Supply Chain Finance.

“Borrowing against invoices rather than fixed assets can help your financing to grow as fast as your business,” he says. “However, invoice finance doesn’t replace good credit control processes. It’s important for businesses to continually review their debt collection and receivables strategy – this is where invoice finance can assist.”

Releasing the cash

A web-based invoice finance system makes it even easier for a business to track and access its cash. You can upload debtor information directly from most accounting software packages, with minimal administration and eliminating the need for monthly reconciliations.

Finding the right level

By developing a strong rapport with your finance partner and providing insights into your business, you can ensure the level of funding is suitable.

To assist with this, an appropriate limit can be established when you take out invoice finance to match your trading cycle and cash flow requirements. With invoice finance, as your business grows and your debtors grow, your available limit can automatically grow with you.

Invoice finance checkpoints

  • Ensure your business sector is well suited to invoice finance. Those with seasonal or daily fluctuations in cash flow are in a prime position to benefit.
  • Be realistic and research how appropriate invoice finance is for your business.
  • Be proactive. View invoice finance as an investment tool to plan for future growth of your business.
  • Consider invoice finance as one part of your overall financial solution for your business, not as a stand-alone funding facility.

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