Australia’s culture of late payments is notorious, and although there are signs that larger businesses are starting to pay their invoices faster, they too face cash flow pressures.
While the recent improvement is welcome for smaller suppliers in particular, it will likely have come at a cost to larger firms, especially manufacturers and wholesale trade businesses who need to purchase considerable quantities of supplies. In many cases, their invoices won’t be paid for 60 to 90 days, leaving them in need of significant business funding.
However, there is a way that this gap can be plugged at very little cost to anyone. With supply chain finance, buying businesses can fund their cash flow gap for free, whilst still paying their suppliers almost immediately.
Sound too good to be true? It isn’t, it’s just innovative business finance.
How Supply Chain Finance Works
The key concept behind supply chain finance is to pay your suppliers as quickly as possible in order to take advantage of early settlement discounts. These discounts can effectively offset any cost to your own business of financing the early payment.
In simple terms, supply chain finance allows the buyer to pay later and the supplier to secure payments earlier, allowing both parties to improve their working capital position. This is done by using an intermediary – a nimble business finance provider like OptiPay
OptiPay is best known for invoice discounting, but we also provide supply chain finance because in many ways, it’s a very similar concept. The main difference is that, while with invoice discounting the supplier sends their invoice to OptiPay for early payment, with supply chain finance it is the buyer who forwards the invoice to OptiPay being the finance provider, as soon as they receive it.
The buyer (via OptiPay) offers to pay the supplier either immediately (or within 48 hours or even 14 days, for example), in exchange for a small discount and because all firms need cash now and would otherwise need to put alternative funding in place for working capital, these are usually forthcoming. The invoice is therefore paid very fast – usually only a couple of days after it was issued – but the buying business only pays OptiPay on its usual trading terms of 30 to 90 days.
Suppliers should think of it as either a COD discount or an early settlement discount. This solution therefore provides effectively up to three months of funding for both businesses involved, while making their cash flow management much simpler.
Why Not Just Pay Early
Whereas in an ideal world all businesses would settle their bills to each other in a matter of days, this simply doesn’t happen. In recent years the Small Business and Family Enterprise Ombudsman has worked hard to tackle the culture of late payments and there are signs that the worst excesses are being eliminated, but gains will be very gradual because all businesses need to look after their own cash flow first. Even with this intervention by the Small Business and Family Enterprise Ombudsman, the standard trade terms is still 30 to 60 days end-of-month, for most businesses.
Even as things stand, cash flow issues are the biggest killer of small businesses, while for bigger companies the cost of paying all their invoices immediately would be significant and many would likely have to review their funding requirements to do this.
Supply chain finance provides a fast, smart solution that benefits both parties at once. It is business funding that is specifically designed to fill the payment gap and therefore no-one is borrowing a cent more than they have to, for a minute longer. This is extremely efficient and can help plug the late payments gap much faster and with far less risk to businesses. In fact, supply chain finance removes many of the cash flow risks and management issues for all involved.
In the following weeks, we will look in more depth at just how beneficial this mutually advantageous arrangement can be.
“Get Tomorrow’s Cash Flow Today”
Who is OptiPay?
OptiPay, one of Australia’s leading business finance providers, has been dedicated to helping small business owners solve cash flow challenges for over a decade and has provided $1.5 billion in business funding to more than 500 Australian businesses. OptiPay specialises in modern financing solutions such as invoice factoring, invoice finance, debtor finance, and lines of credit. OptiPay’s mission is to support business growth providing liquidity in as little as 24 hours, ensuring they have access to tomorrow’s cash flow today. This rapid access to funds helps businesses maintain smooth operations and seize growth opportunities without the stress of cash flow constraints. At OptiPay, we believe that healthy cash flow is the lifeblood of any successful business. Our commitment to helping businesses overcome financial hurdles and achieve their growth ambitions has solidified our reputation as a trusted partner in the business finance sector. Whether you are looking to stabilise your cash flow, expand your operations, or navigate financial challenges, OptiPay is here to support your journey with innovative and efficient financing solutions.
