Maintaining a healthy cashflow is a critical component of business success. In fact, without a healthy cashflow, business failure is highly likely. Why? Because businesses require liquidity to be agile in marketing initiatives as well as to cover operating expenses and employee salaries.
The Australian market is only becoming more competitive, which is magnified through low barriers to entry, rapidly changing consumer behaviour and tough economic conditions. Therefore, cementing effective cash flow management practices can protect your businesses from risks and ensure stability.
In this blog, OptiPay explores how flexible financing solutions can help companies avoid cash flow pitfalls.
Common Cashflow Challenges Businesses Face
All businesses will incur cashflow challenges, regardless of their size or industry of operation. However, these difficulties are felt more intensely for small-to-medium-sized-enterprises due to their limited resources. Common cashflow pitfalls include:
- Poor budgeting: Failing to account for future costs, taxes, or materials
- Late payments: Delayed payments from customers
- Unexpected expenses: Sudden increases in demand or staffing costs
- Poor stock management: Ineffective handling of inventory
- Unsustainable debt: Accumulating excessive debt levels
- No emergency funds: Not having money saved for unexpected expenses
The impact of cashflow challenges can be brutal for business growth. In fact, according to SCORE, over 80% of small businesses have failed due to cash flow issues. So, what can you do to mitigate the impacts of financial strain?
Introducing Flexible Financing Solutions – like Invoice Finance
Flexible financing refers to innovative financial tools such as invoice financing, receivables finance, and invoice factoring, which have been created to provide businesses with immediate access to working capital.
A key advantage of financing tools like this is that it allows businesses to tailor their repayment schedules by extending or shortening loan terms, making early repayments without penalties, or pausing payments during financial strain.
Unlike traditional financing methods like bank loans, these financing tools offer a personalised service based on each business’ unique needs, offering an efficient way to bridge cash flow gaps without solely relying on loans (or large debt!).
How does it work?
Invoice financing allows businesses to access cash that is tied up in unpaid invoices by receiving a percentage of the value upfront. This relieves cash flow strain, helping companies manage operational expenses without waiting for customers to pay.
Similarly, receivables finance involves leveraging a company’s total accounts receivable as a funding source, ensuring liquidity. Using this method, the company can maintain control over their relationship with customers.
Alternatively, invoice factoring allows businesses to sell their invoices to a third party, providing immediate cash and shifting the collection responsibility to the factor (such as OptiPay).
The Process for Implementing Flexible Financing Solutions
The process to adopt modern, flexible financial solutions as part of your cash flow management strategy is quite simple. Here are the steps:
Step #1: Sell your unpaid invoices to a financing provider:
The business sells its unpaid invoices to a third party.
Step #2: Receive an advance on the invoice value:
The financing provider advances a percentage of the invoice’s value (usually between 70% and 90%). This allows the business to access working capital quickly, helping it cover operational expenses or invest in marketing activities.
Step #3: Customer payment and release of remaining funds:
Once the customer pays the invoice in full, the financing provider releases the remaining balance to the business, minus any agreed-upon fees for their service.
This process enables businesses to access funds quickly without using traditional loans or offering collateral. By leveraging unpaid invoices, a.k.a capital they’ve earned that has yet to be received, companies can effectively bridge any gaps in their cashflow to better manage their financial obligations.
The Benefits of Flexible Financing
Flexible funding solutions offer Australian businesses an array of benefits, such as stable cashflow, reduced debt dependency, financial flexibility, and effective resource management. These solutions allow companies to access capital without taking on long-term debt or risking assets.
Arguably, the key advantage it offers is adaptability – businesses can tailor their repayment schedules to suit their financial situation, can use the tool when they want rather than being locked into a fixed contract, and can grow the amount of working capital they have access to simply by increasing their sales.
This flexibility ensures that companies can manage their cash flow effectively, respond to unexpected expenses, and seize growth opportunities when they arise.
Choosing the Right Partner
To avoid financial difficulties, businesses should adopt a holistic and strategic cashflow management system, which includes planning and budgeting for upcoming expenses, negotiating favourable payment terms with suppliers, building an emergency savings fund, and preparing for unexpected costs.
Choosing the right financing partner is a critical component of executing a strategic cashflow management system as well as leveraging flexible financing to it’s full potential To make the best choice for your business’ needs, you should create a list of non-negotiables.
What are you looking for in your financing partner? For example, you may include on this list:
- Transparency with fees and terms
- No hidden charges / extra fees
- Are they responsible for invoice payment collection or are you?
- What do you require in customer service? Take note of their response times
- Do they have experience in your industry? Ask for testimonies or referrals
- Where are they based? Does this compliment your location?
Once you have your complete list, conduct research to find relevant financial providers. Then, mark their services against your list.
The partner, and solution, you choose to implement should align with your goals and requirements, supporting immediate liquidity and long-term growth.
Blog in Summary
Maintaining healthy cash flow is crucial for the success and stability of every business, regardless of their industry. Flexible financing solutions, including invoice financing and receivable financing, has the potential to effectively bridge cash flow gaps… without relying on traditional loans or accumulating debt.
By providing immediate access to working capital, these solutions enable businesses to capitalise on growth opportunities, reduce financial strain, and manage expenses.
Remember, choosing the right financing partner can make or break your cash flow management strategy. To learn more about flexible financing options available to you, get in touch.
