SMEs are engines of economic growth in Australia as the sector contributes significantly to the country’s market and employment. According to Australia’s Bureau of Statistics (ABS), 99.8% of businesses in Australia (by count) are small to medium-sized enterprises. For SMEs to continue to thrive, they must have the cash flow to continue their operations. The first solution that one may think of is going for a bank loan. However, SMEs are starting to look for other options in 2021.
In the latest ScotPac SME Growth Index research, 1 in 12 small businesses are twice as likely to use non-bank funding to deal with the impact of the pandemic and to solve their perennial funding problems. Furthermore, only 17% of SMEs would approach their main bank to help fund business growth. Business owners currently feel that the main hurdles they need to face are securing or increasing their customer base and diversifying their funding base/finding new sources of funding. With more and more SMEs opting for alternative funding to generate cash flow in tight times, invoice finance is one of the solutions that can help.
What is Invoice Finance?
If your company sells goods or services on credit terms by issuing an invoice to your customers, then you may be a candidate for invoice finance. Invoice finance bridges the cash flow gap between when you make the sale and when you are paid. Typical payment terms range from 30 to 60+ days, leaving a long period between revenue recognition and cash in your bank account. Cash is what pays the bills and allows your business to take advantage of growth opportunities, not revenue.
Invoice finance is an advance on the money owed from your outstanding invoices. It is like a revolving line of credit – effectively ‘unlocking’ the cash tied up in your accounts receivables ledger. Financiers will pay your business up to 90% of the verified outstanding invoice value, often within 24 hours. When your customer pays, they will remit the remaining amount, minus a small fee, to facilitate the early funding. SMEs can then use this cash immediately to secure new customers, pay for stock and invest in the latest opportunities and enhance their financial position.
Overcome Periods of Uncertain Cash Flow
According to Xero, 83% of small businesses in Australia struggle with big businesses paying them on time. This halts cash flow which in turn causes major problems for SMEs. Australia’s credit terms are below the regional average (25 days), and 84% of companies report receiving late payments. This can cost thousands of dollars per year in effort and time from chasing the unpaid invoices alone. If SMEs had access to easier funding solutions, this problem would be solved faster, or at least more efficiently. Solve the cash crunch, from chasing customers for their unpaid balance, or applying for tedious business loans with invoice finance. It’s a financing solution for businesses that is fast, efficient and very cost effective.
Australia’s SMEs are now using invoice finance more than ever because it improves their cash flow and helps with business growth. There’s no more waiting time or compromising their credit rate by using other channels. With invoice finance as the primary funding solution, businesses turn their outstanding invoices into cash in as quickly as 24 hours. There are no hidden fees and no long lock-in contracts for fair funding. It has been growing rapidly in Australia since it provides the accessibility and flexibility that SMEs are looking for, instead of a fixed term of 9 to 24 months of a typical non-bank business loan.
Invoice finance provides excellent flexibility in terms of payments. Companies can easily access working capital whenever they need it. This way, SMEs can effectively use the increased liquidity to continue their business purchases, operations, pay their staff on time, and other needs to help the company grow.
Supporting SMEs to Drive Growth
According to Australian Leadership Index research, it was revealed that SMEs are providing more benefits in the country than larger businesses. Consumers believe that SMEs are contributing significantly to the positive economic outcomes and rebound too. Invoice finance is a growth solution, too, as it scales with the growth in revenue of the user. As revenue increases, so do outstanding invoices and the amount that can be funded. Think about all aspects when considering invoice finance as a source of funding, including the opportunity cost of not taking any action.
To make things better for business owners like you, OptiPay can help you access the working capital you need to support your operations and expand your business. Get the cash you need today from a fast, easy, and flexible funding solution today!