Have you considered cash flow financing?

cash flow financing

The following article has been provided to us by Factor One Invoice Finance.  You can find out more about their services here.


Why even profitable businesses need more access to cash


“My business is profitable but I have no access to cash.”   Seventy per cent of the businesses Scottish Pacific & FactorONE support are growing, profitable businesses that need additional access to working capital to fund that growth.  This is not surprising when you analyse payment data which suggests it takes corporate businesses, on average, 52.4 days to pay SMEs; a stark comparison to the 43.0 days it takes for SMEs to pay corporate businesses.

What can business owners do to close the cash gap in their business?


Assess Stock on Hand


Greater volumes of stock = smaller amounts of cash.  If all profits of the business are going back into purchasing new stock a business can turn a profit but have no access to cash.  Business owners should try and take advantage of ordering “just in time” where possible and should make use of the credit terms offered by suppliers.  If neither of those options are possible a trade finance facility may be the answer.  Trade facilities close the cash gap at the front end of a transaction – often offering buyers 90 day terms for purchases.


Look at the Creditor Position


Reducing creditors reduces cash.  Creditors need to be paid however making payment before the invoice is due unnecessarily reduces your access to cash.  Make payments when due but not before.  When you analyse this from a profit vs cash perspective a business may have made a $50k profit in the month however if they have reduced their creditors by the same amount then the business would have no access to cash derived from that profit.  Often businesses pay suppliers early when they have reached their credit limit – if negotiating a larger limit isn’t possible, then a domestic trade facility may be an effective way for the business to purchase new stock.


How much cash is tied up in Debtors?


The larger a business’s receivables accounts are, the less cash there is available to use to grow the business.  Managing receivables with a robust credit policy, or shortening credit terms, will assist in bringing in extra cash.  It can be very difficult to enforce early payment and this may come at the cost of offering discounts for a customer to do so.  Invoice finance is a tried and tested solution for SMEs and larger businesses who need additional access to cash but must sell on credit terms to remain competitive.  An invoice finance facility provides business owners with 80% of the value of their invoice within 24 hours of the lender receiving a copy, the customer then pays the financier who in turn forwards the remaining 20% of the invoice value back to the client less fees.


Further help:

If you would like to discuss the working capital solutions offered by Scottish Pacific and FactorONE, you can contact their team at 1300 269 423 or find out more on their website https://www.factorone.net.au/ .

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