The popularity of invoice finance is increasing daily as more SME take notice of the potential housed by their ledger in terms of working capital. Unfortunately, not everyone understands the science behind invoice finance. What is it? How does it work? And who is this funding option best suited for?
What is invoice finance?
Invoice finance can be best described as a flexible funding solution that utilizes the cash that is tied up in unpaid customer invoices. Invoice finance releases this cash to enable the business to satisfy the needs that always arise as a result of trading on credit.
Though invoice finance Sydney, you will be able to get access to up to 90% of the value of your invoice within 24 hours after it has been issued. The remaining amount is then paid to you when the customer clears their payment, and after the agreed fee has been deducted.
Invoice finance comes in numerous variations, but the most popular among SME’s is invoice factoring and discounting.
How invoice finance works
The different variations of invoice finance all have their unique methods of availing cash for your business. Nevertheless, there is a main process that is the same for all the processes.
- You provide the invoices from your sales.
- The financier gives you up to 90% of the value of the invoice in advance.
- The financing company collects the payments from the customer.
- The balance of the money remaining from the value of the invoice after the agreed fees have been subtracted is sent to you.
Type of Invoice Financing
The two most common types of invoice finance are factoring and invoice discounting. Both of these are designed to boost your cash from by availing the tied up working capital in your invoices.
Invoice factoring is packaged with a dedicated sales ledger management service, which helps in the collection of invoices and reduces the number of in-house employees required for this task. Many SME’s in Australia prefer invoice factoring mainly for this reason.
Invoice finance Sydney offer both of these products to safeguard your cash flow against protracted default and late payment and also as a means for bad debt protection.
Which Businesses Are Best Suited To Use Invoice Finance?
Although there are certain businesses better suited to use invoice finance compared to others, the general rule of thumb for this form of financing is that your business should be trading on credit terms.
Benefits of Invoice Finance Australia
The following are a few ways in which invoice finance Sydney will benefit your business.
- Boost your cash flow
- Bridge the cash flow gap between making supplier payments and getting paid.
- Can include extra services such as debtor protection and credit control.
- Can be customized for fit the unique needs and requirements of your business.
- It’s very flexible since the amount you qualify for is dependent on your sales ledger.