If your business relies on invoice payments, you would be more than familiar with the challenges of managing cash flow. Extended payment terms often mean weeks of waiting for your clients to pay. Simultaneously, you must pay your team for the work they already completed on a project. You have likely spent many phone calls or emails chasing clients for these payments and calculating whether you will have the cash reserves to meet business costs. These issues not only disrupt your day-to-day operations but also impede growth and expansion efforts.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) found that only 30% of big businesses pay small business suppliers within 30 days. Nearly a quarter take more than 120 days to pay.
Invoice finance has become a popular solution for companies that rely on invoice payments and experience cash flow pressure. If you are considering invoice finance, we recommend carefully assessing the available solutions first. Here are seven questions to ask before getting started.
What are our cash flow needs?
Start by identifying cash flow gaps and your business needs. A detailed insight into your financial inflows and outflows can highlight specific challenges, such as misalignment between invoice payments and payroll, which might hinder growth or the ability to cover business costs.
Invoice finance can quickly bridge the gaps created by outstanding invoices, but you need the right solution for your business. Before considering invoice financing, you must evaluate if it directly addresses your company's unique financial challenges. While it is effective for certain cash flow issues, you should understand its suitability for your company's growth.
What percentage of the invoice value can we access upfront?
When considering invoice finance solutions, you should understand that providers may offer varying percentages of the invoice's face value upfront. One provider may only give you 80% of the value immediately; others might offer as much as 90% or even more, depending on their terms and the assessed risk of taking on your invoices.
You should consider these percentages against your company's immediate cash flow needs to make an informed decision. For example, a higher advance might come with increased rates, so you will need to calculate whether you need a higher advance or if a lower advance would cover your costs.
Is the system simple to use?
Your team must be able to upload invoices and access payments easily. While you may need to offer some training initially, your team should not struggle to learn the platform. A straightforward and intuitive interface saves teams valuable time, ensuring that financial processes are smooth and free from unnecessary complications.
Equally, if your clients need to use the platform to make invoice payments, it should also be easy for them to use. If clients encounter issues or confusion, it can lead to frustration, damaging your relationship with them. An effective invoice financing solution should prioritise ease of use for your business and clients.
Will the solution integrate with our existing systems?
You should investigate the provider's systems and whether they offer integration with your back-office platforms and applications. Integration eliminates potential delays, ensures data consistency, and streamlines workflows, making financing more efficient for your team.
Selecting a provider that does not align well with your current systems can lead to operational disruptions and added administrative burdens. It is best to opt for an invoice finance solution that complements and enhances your established systems, ensuring a fluid transition and optimised operational efficiency.
Does the solution include hidden fees?
When reviewing invoice finance solutions, you should investigate whether they include additional or hidden fees. While the upfront costs may seem transparent, some providers might embed additional charges for using the service, processing fees, or other costs that are not immediately apparent.
By investigating additional costs, you can comprehensively understand the solution and decide whether it is best for your organisation. By gaining clarity on the charges, you can make informed decisions and determine the true cost of the financing solution.
Do we meet the criteria for invoice finance?
For business owners considering invoice finance solutions, assessing whether your business aligns with any criteria that providers request you meet is essential.
Typically, to be eligible, your company will need to be a registered business within Australia that relies on invoice payments. While a growing business needing capital support can be a prime candidate for invoice finance solutions, providers might also look at the company's credit history, the quality of their debtors, and other financial metrics. So, you must familiarise yourself with these requirements to determine your suitability for invoice finance.
Is invoice finance right for the business?
This final question is perhaps the most important. Now that you have answered the above questions, you must consider whether invoice finance is the best solution for your company.
Invoice finance solutions provide an excellent alternative to a loan, but other solutions might suit you better. For example, if your primary concern is making a one off investment in the business, then perhaps a unsecured business loan might be more appropriate for your business. For this reason, you must thoroughly assess your needs and decide whether invoice finance is the right path.
When choosing an invoice finance solution, you should ask key questions about your business and the invoice finance provider to understand their compatibility with your business. By asking these questions, you improve your chances of finding a provider you can build an enduring partnership with as your business grows.
Why consider APositive’s invoice finance solutions?
Our Invoice Finance solution alleviates financial pressure created when waiting on invoice payments. Rather than wait up to 90 days for clients to pay invoices, our solution gives you access to the funds invoiced within 24 hours. So, you can focus on covering overhead costs, paying your staff and growing your business.