Does your business work for your finances, or do your finances work for your business? In cash intensive sectors such as wholesale and manufacturing to name just two, the answer to that question is often the difference between smooth running, and a constant cash flow nightmare.
A business which is constantly working to keep on top of its bills is never at its best. On the one hand it is constantly in need of additional funding just to finance its current operations, and can therefore never hope to invest in serious growth or cost-saving technologies that would improve profitability. On the other, by using overdrafts, business loans and other costly forms of medium term funding to cover working capital, what profits it does achieve will mostly go to the bank.
Instead, growing businesses need to find a financing system that ensures there is always enough money in the system to comfortably pay bills without being a long term drain on profits; and one that allows for further funding for investment when needed.
Why Funding is Key
For wholesalers and other businesses which must spend a significant portion of turnover in order to regularly bring in supplies before they can deliver their own product, the funding method which enables their trade should be regarded as a key function of the business.
Why? Margins are important – and finance costs should be included in that calculation. Additionally, it is crucial to stay on top of your bills, because excessive delays can rapidly spiral into a business that is short on cash: If a supplier decides to withhold a crucial delivery because you are behind on your payment schedule, you could lose the business completely and end up paying for workers who are sitting idle; late payments to lenders or even worse, the taxman, which can all lead to penalty payments, problems obtaining further credit and even winding-up order or default notices; and if word gets out that you’re struggling to pay your bills, you may find that all credit dries up in an instant, not to mention loss of future purchase orders and sales.
Even if things aren’t as bad as the worst case scenarios highlighted above, constant worries about meeting payments and getting creditors to pay are a huge distraction to the business ownership and management. What business owners need is a system that, once in place, works almost autonomously to ensure all the necessary funds are in place. At the same time, this system needs to be flexible enough to be adapted as a business’ needs and circumstances change.
This can be achieved through innovative forms of cash flow funding, such as Invoice Finance, Supply Chain Funding and Trade Finance, which are ideal for wholesale businesses and many others, which trade regularly with other companies, both locally and with offshore suppliers.
How to Use Cash Flow Finance
A wholesaler that sources product locally has two key forms of cash flow finance available – more if they trade beyond Australia, but we’ll leave Trade Finance for another day. Invoice finance and Supply Chain Funding can be combined on a single fintech platform like OptiPay to provide the perfect funding cover and ensure you never fall into a cash flow trap.
On one side of the equation, a business can sign up for Invoice or Debtor Financing. This means that it can present any of its invoices to OptiPay as soon as they are issued and get up to 90% of the face value upfront. By doing this the business gets its money immediately instead of waiting 30-90days for payment from customers/debtors, at the same time insuring against the occasional non-payment due to a customer going bust.
On the other side of the balance sheet, Supply Chain Funding can also be a useful tool: this sees OptiPay pay your bills to suppliers as soon as they are issued, taking advantage of early payment discounts to cover the cost of extending you a payment period of up to 120 days. If that period is larger than the time the goods spend in your warehouse (which should be), your cashflow problems are solved.
By using Debtor Finance and Supply Chain Funding together, flexibly and on a single fintech platform that OptiPay offers, the cash needs of your business are always covered – and there is often additional money left over for investment. This system not only provides working capital and investment capital, but also serves to smooth out cash flow, ensuring you’re never waiting anxiously for an invoice to be paid while desperately negotiating for time with an irate supplier.
Smooth finances mean smooth business, and frees up management time and resources to plan for further success, To find out how intelligent cash flow finance can work for you, contact OptiPay today.