Newsletter Articles

Cash is King !

Regardless of what type of industry you are in, as your business grows so too will your requirement for Cash. Managing the cash flow of a business is arguably the most important task of any business. For some, it can also be the most stressful. It doesn’t have to be…

One of the most valuable assets of a business is its debtors (money owed by your clients to your business). If your business has supplied the goods or service and invoiced your client accordingly, this invoice (albeit unpaid) is indeed a very tangible asset.

Using the debtors of your business as security for its funding requirements is the fastest growing finance product in Australia.

In western countries such as USA and UK, the use of a Business’ debtor assets is the single most-used form of finance; 1 in 3 businesses use it. It’s very cost-effective, you only pay for what you use, it can be a ‘confidential’ arrangement which your customers do not know about, traditional property security is not required, and the funding facility grows as your business grows.

Importantly, this finance is a 'confidential' arrangement which your customers do not know about. The concern and 'stigma'that some business owners had about Factoring is not an issue with Debtot/Invoice Finance.

Why wouldn’t it be so popular?

With traditional real-estate-based lending, there is always an absolute limit on how much funds a bank is prepared to lend you. With debtor finance, the security is the debtors themselves so the loan facility grows as your business grows. Accordingly, debtor finance will often provide your business with far more funding than is possible through a traditional overdraft, thereby removing the biggest hurdle that exists for growing businesses - funding.

You DO have the cash to fund growth. As your business grows so to does your cash flow requirement. Often, this cash flow requirement outweighs the level of equity in available property security. The funding facility grows with the business as its debtors increase. Whether looking to expand your business via an acquisition of a competitor or naturally, if you can generate the sales, debtor finance can make the cash available.

You don’t need property security. The principle security for Debtor Finance is a charge over your Business’ invoices. If you already have supplied property security to a bank, debtor finance may enable you to repay / reduce your existing mortgage and free-up your property for other purposes.

A fresh start. Not only can your business leverage off the value of your debtors in the future, you could also raise funds against the value of existing debtors to clear that annoying overdraft and / or make a fresh start with your creditors.

Better profits. Your business needs cash flow, and so do your suppliers. You may be waiting to be paid by your debtors before you can pay your suppliers. Debtor financing empowers you to negotiate discounts with your suppliers in exchange for early payment. The end result to your business… bigger profits.

A viable solution when buying or selling a business. Whether it is the purchase of all or part of a business by a key employee or by an (external) third party, the use of a Business’ debtors may be the perfect tool to enable the sale to take place.

Reduced wages and management stress. A feature of debtor financing that some business owners find attractive is the ability to outsource the management and collection of your debtors. This reduces the administration expenses to your business and ensures that the debtor collection processes of your business is managed with less risk, greater efficiency and more professionally.

TIP: Think long and hard about providing the debtors of your business as security for funding as opposed to mortgaging property. This form of funding makes sense and has contributed towards the success of many businesses.

For further information on how this incredibly practical financing solution could assist your business, contact Simon Pressley at 6-Point Finance on (07) 3252 2951 or simon@6pointfinance.com