We’ve discussed many aspects of Invoice Financing prior to this blog but perhaps it’s time to go back to basics – after all, more than 30% of eligible businesses are sadly still unaware that it exists.
Also known as Invoice Discounting or Debtor Finance, Invoice Finance is a form of business funding which sees cash secured against the value of outstanding invoices. In other words, it allows a business to access all the money tied up in its accounts receivable, immediately, instead of having to wait 30, 60 or even 90 days for your customer to pay the invoices you have issued to them.
There are various forms of Invoice Finance, and some involve a business handing over its entire billing operation to a factoring firm. This is not what OptiPay offers, though: our Invoice Finance solution means customers can in those months, that the business has strong cash, choose to only discount some of the invoices or even discount a smaller percentage in order to get part of the funds advanced upfront. If the business doesn’t need all the funds from discounting all invoices, that’s ok. OptiPay offers the flexibility to do this, as long as the minimum service fee is reached in that given month.
How it Works
With OptiPay, it’s very simple: once you have set up an account and your debtors have been approved (this can take as little at 48 hours), you can simply use our real-time software portal to get cash for your outstanding invoices. You can usually get up to 80% (and sometimes as much as 90%) of the value of each invoice upfront. You will then get the remainder, minus our discount charges, when your client pays the invoice.
Because invoices aren’t usually paid until 30, 60 or even 90 days after receipt, by getting 80% of the funds upfront instead of waiting, this means that a business can raise significant amounts of money upon the issue of invoices: enough to fund growing operations, one off big orders, working capital, investments and much more.
It is important to point out that Invoice Finance is not a debt facility, it is simply a facility that allows a business owner to access funds from unpaid invoices, immediately! There are no repayments like a loan. It simply works by waiting for your customer to pay their invoice 30, 60 or 90 days later which then “repays” or offsets the funds that have been given to you upfront.
Benefits of Invoice Finance
Invoice discounting is a fast, accessible, cost-effective and secure way to raise money for your business.
You can set up an account with OptiPay within days and get money from invoices within 48 hours of approval. Any business that is invoicing other businesses (ie: not selling to consumers) is eligible. Because it is based on the amount that is invoiced each day, week or month, the amount of funding available to the business is always tailored to the size and the cash flow needs of a business. It is however worth shopping around as the fees charged for Invoice Finance can vary considerably between providers.
It is also worth noting that with Invoice Finance, you only access the cash that you need, when you need it, based on the amount of your receivables ledger. Compare this to the slow process of trying to secure a business loan which, should you get it, will tie you in for a fixed period of time with fixed interest and principal repayments until fully repaid.
One further important advantage of Invoice Finance compared to business loans, which is often overlooked, is the lack of risk: with a loan, you are tied into a schedule of repayments and missing one will lead to serious problems. If an invoice that has been funded by OptiPay is not paid by your debtor as a result of your debtor going into insolvency/administration you will be covered by our OptiPay Secure debt protection insurance product.
Who can use Invoice Finance?
As mentioned above, any business selling a product or service that invoices other businesses on payment terms (ie: not selling to consumers) is eligible for invoice financing. Indeed, in some countries it is far more popular than in Australia, simply because more business are aware of the benefits it offers.
Whereas in Australia Invoice Finance volumes are equivalent to about 3.9% of GDP, with around AU$7 billion lent at any one time, in the UK the cash advanced to firms over the course of last year was about 19% of the whole economy. Around AU$42bn of invoice and asset finance was in play at the end of 2018.
The experience in countries like the UK and the US shows that, once businesses get a taste of Invoice Finance, they will use it because it is such a practical, efficient and cost effective way to fund business operations for growing businesses. More and more Australian firms are realising this too, and getting in touch with OptiPay
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