Unfortunately, it’s common for Australian entrepreneurs to face complex challenges when it comes to securing funds for their ventures, which can be detrimental to business growth as access to adequate financing is essential for business growth, expansion, and staying ahead of the competition.
Fortunately, there are various alternative financing strategies available to entrepreneurs. In this blog, OptiPay outlines the key to thriving in Australia’s competitive market; business financing strategies with a core focus on the benefits and potential of invoice financing.
A recap on Australia’s business landscape
Before delving into financing strategies, comprehension of the current Australian business landscape is a necessity.
Australia is known for its robust economy, diverse industries, and highly competitive market. From small startups to established corporations, businesses across the country face fierce competition, changing consumer demands and constantly evolving regulatory complexities. To thrive in such a dynamic environment, a well-thought-out financing strategy is paramount.
What are the traditional financing options?
When it comes to funding their operations, Australian businesses have traditionally relied heavily on bank loans, lines of credit and business credit cards. Whilst these options can provide the working capital a company needs, these debt-based loans often come with stringent requirements, lengthy approval processes and limited flexibility.
Many small businesses, particularly those with minimal trading history, struggle to meet these criteria – it’s even harder for founders with less-than-perfect credit scores! Consequently, entrepreneurs have sought alternative financing solutions to fuel their growth. Alternate funding avenues have continued to rise in popularity given their versatility and accessibility.
Alternate funding avenues include equity crowdfunding, angel investors, venture capital investment and invoice financing. For the purpose of this blog, let’s hone in on invoice financing.
The Rise of Invoice Financing
Invoice financing has established itself as a valuable alternative for businesses seeking flexible and accessible financing options. This form of financing allows businesses to unlock the cash tied up in their outstanding invoices.
How does it work? Essentially, a business sells its unpaid invoices to a financing company, also known as a factor, at a discounted rate. The factor then provides an upfront payment to the business, typically around 80-90% of the invoice value, providing access to immediate funds. Once the customer pays the invoice, the factor then pays the remaining balance to the business, minus a small fee.
Benefits of Invoice Financing
Invoice financing offers several advantages that make it an attractive financing strategy for Australian businesses. Let’s delve into it;
Improved Cash Flow:
By accelerating cash flow, businesses can meet immediate financial obligations, such as paying suppliers, covering payroll and investing in growth opportunities. Invoice financing bridges the gap between issuing an invoice and waiting for payment, which can (in some cases) be a 90 day gap, providing businesses with a reliable source of working capital. With improved cash flow, businesses can seize opportunities for expansion and take advantage of favorable market conditions.
Flexibility and Speed:
Unlike traditional financing options, invoice financing is quick and flexible – a good factor (like OptiPay) can mold the process to suit the business’ needs. The approval process from initiation to cash received is typically much faster – allowing businesses to access funds within days.
This speed to market is crucial in Australia’s competitive business landscape, where opportunities commonly arise suddenly and require immediate action. Moreover, the financing limit increases as sales grow, enabling businesses to scale without seeking additional funding. This scalability ensures that businesses can meet increasing demands and invest in their future growth.
Minimal Credit Requirements:
Invoice financing relies on the creditworthiness of the paying customers rather than the business itself. This makes it accessible to businesses with limited operation, poor credit history or those struggling with lower credit scores. Instead of being judged solely on their creditworthiness, businesses can leverage the reputation and payment history of their customers to secure financing. This opens up opportunities for startups and small businesses that may not have established credit profiles and who otherwise would not be eligible for traditional funding avenues.
The financing company assumes the risk associated with collecting payments from customers, reducing the business’s exposure to bad debts and non-payment issues. This provides peace of mind to business owners and allows them to focus on operations and growth. By transferring the credit risk to the financing company, businesses can more accurately protect their cash flow and work to maintain stability, even in uncertain economic conditions. This risk mitigation is essential for businesses that work with customers on long payment terms or in industries where late payments are frequently incurred.
Choosing the Right Invoice Financing Provider:
To make the most of invoice financing, it is important to partner with a reputable and trustworthy financing provider. Business owners should consider factors such as the provider’s experience, reputation, terms and fees, customer service, and industry expertise. Conducting thorough research, reading reviews, and seeking recommendations can help businesses find the ideal partner that aligns with their specific needs.
In summary, a robust financing strategy is a must-have to thrive in Australia and run a successful business. While traditional financing options have their merits, invoice financing stands out as a viable and advantageous alternative. By leveraging invoice financing, businesses can improve cash flow, enhance flexibility, mitigate risks, and drive growth.
Remember, in the ever-evolving business world, staying adaptable and open to innovative financing strategies can be the key to thriving in Australia’s competitive market.
To better understand your business’s current financial situation, and learn how invoice financing may work for you, get in touch with OptiPay.