When you’re starting up a business, growth is everything. But there comes a point where too much expansion too quickly can be overwhelming and cash flow problems start to make day to day business life difficult.
Business owners will reach a point where they need to consider financing in order to bridge that gap.
Businesses reject bank loans
Traditionally, many businesses have applied for a bank loan but the problem here is timing. A recent report from Judo Bank found banks take on average 42 days to discharge loans when an SME switches lenders. A growing business needs access to money quickly.
This is where invoice financing comes in, a popular source of funding overseas which is now growing in popularity here in Australia. Think of it as being an advance on money owed from a business’ outstanding invoices – like a revolving line of credit. You are effectively unlocking the cash tied up in the accounts receivable ledger.
An invoice finance company will pay up to 90% of the verified outstanding invoice value, often within 24 hours. It bridges the cash flow gap between a sale being made and cash for that sale actually being received.
Why growing businesses need an alternative
About 75% of businesses who come to us at Optipay are experiencing periods of high growth.
They’re usually seeking money for
- New contracts
- New employees
- Upscaling machinery
- New premises
Unlike a bank, we don’t look at your historical financial performance and are not focussed on your debt to equity ratio and serviceability, we instead look at what your current and forecast sales are.
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Popularity of invoice financing
The demand for invoice financing has more than doubled since early 2018 with 16.3% of SME’s taking out a new invoice finance facility in the past 12 months compared to 7.6% three years ago.
We’ve seen a two-fold increase in businesses enquiring about invoice financing compared to the same time last year with most of the interest coming from the manufacturing and wholesale trade industries.
A question all business owners need to ask themselves is how they’re going to cope with periods of rapid growth. For some, it can be what makes or breaks them.
For us, here at Optipay, the best type of business to take on is a growing one. They’re running efficiently, they’ve got good cash flow and they’re making strong sales – they just need some help bridging the gap.
By Angus Sedgwick, CEO of Optipay
About Angus Sedgwick
Angus Sedgwick is the CEO of Optipay, formerly TIM Finance, which provides Australian SMB businesses cashflow they need to grow. Funding solutions include invoice finance, inventory finance and lines of credit. Their range of fast, flexible and affordable financing solutions help businesses solve their cash flow challenges, without the need for property security. Find out more at https://optipay.com.au
