For businesses planning for growth and longevity, an understanding of business finance is not just beneficial. It’s essential. This knowledge helps safeguard financial health and equip businesses to make strategic decisions, ensuring they thrive in competitive markets.
In this article, we’ll answer the following questions: What is business finance, what are common financing options, and when is it time to seek finance?
Tim Bowring, Octet’s Head of Sales, Health, also helps us explore the business financing options for the health and pharmaceutical industry. But regardless of the industry you operate in, these insights will help you to better understand the business finance options that can help your business grow.
Understanding the best finance options for your business
Business finance encompasses all types of financial activities crucial for day-to-day operations and long-term planning. It includes managing cash flow, budgeting and funding strategic initiatives.
Tim says businesses must first grasp how cash flow works when it comes to understanding finance. “Cash is king. It pays the bills and repays debt. Having a good picture of how your cash flow works will set you up to understand the most appropriate finance options available to your business.”
Tim says when looking at types of finance, there are several key factors to consider, such as:
- How often will you want to draw down on the facility?
- How quickly can you repay it?
- Are there ongoing fees to be paid if you haven’t used the facility or drawn all of the limit?
- What security do you need to get the finance?
“One common misconception is that the lowest interest rate is the most important thing,” he adds. “But the interest rate isn’t always paramount.”
When it comes to the healthcare sector, Tim helps secure funding for businesses who work with him on a range of needs, including:
- paying ongoing wages for locum doctors and dentists
- importing stock and equipment
- manufacturing medical supplies and pharmaceuticals
- covering IT service contracts.
Business financing options
There are many financing options for managing and growing a business. Many businesses rely solely on internal sources of funding (so the funds they generate as part of operations).
When seeking external sources, most business owners will be familiar with traditional forms such as bank loans and lines of credit. However, most businesses are experiencing tightening conditions, and banks can take months to approve finance applications. Banks also often seek personal security and collateral, which is a drawback for businesses that don’t have significant assets or don’t want to risk their director’s personal assets.
Equity financing is also an option for start-ups and growth-stage companies without steady cash flow. However, this dilution of ownership and long-term commitment are significant drawbacks of this type of finance.
Trade finance and debtor finance (also called invoice finance) are two other types of business financing options. Trade finance products help facilitate international and domestic transactions, mitigating risks and facilitating smooth transactions between buyers and sellers.
“If you have to pay for stock on delivery, for example, trade finance can provide you with extended terms,” says Tim. “If you have short payment terms, there are even ways to negotiate an early settlement discount with the supplier.”
Debtor finance (also called invoice finance) helps bridge cash flow gaps by allowing businesses to borrow against their receivables ledgers.
“A business that’s growing rapidly by offering competitive credit terms to its customers is likely creating a cash shortage in the business,” Tim says. “If it is buying stock that is paid at order or shipping, it is also negatively impacting the business’s cash flow. Invoice finance can unlock up to 85% of invoice values immediately, which is essential for maintaining operations and funding growth.
“In today’s challenging environment, businesses are feeling the cash flow pinch. The key to managing cash flow gaps is often intelligently tailoring the right business finance solution for your supply chain and growth requirements.”
Healthcare companies particularly rely on a smooth-flowing supply chain to support patient wellbeing and ensure the timely availability of medical and other supplies. For many businesses operating in the industry, business finance to manage cash flow is crucial to safeguard their supply chain and network.
Ready for better business finance? What you need to know
Before applying for any variety of business finance, Tim recommends preparing by having a detailed cash flow forecast and identifying any cash flow gaps. “Then, make sure you ask plenty of questions of the financier about their processes and the specific product/s to see whether they’re a suitable fit.”
Questions include:
- What security is required to obtain the facilities?
- What are the line or service fees?
- Does the facility or platform protect my business from risk when importing from overseas?
- What is the speed of transactions?
How can you support my businesses to achieve growth, whilst making informed financial decisions?
“Octet has a proven track record of supporting Australian businesses. Whatever industry you’re in, we can help you accelerate supplier payments, general cash flow and foster stronger relationships with customers and suppliers with our Debtor Finance and Trade Finance solutions.
“The Working Capital Specialists at Octet will work with you to help you better understand your cash flow, where the gaps are and what options are available for funding those gaps.”
For those in the healthcare and pharmaceutical industry, these solutions can mitigate the unique challenges faced by the industry and make the most of growth opportunities.
Discover the best business finance fit for you
For many businesses, accessing appropriate business finance is crucial to achieving sustainable growth. Octet is committed to supporting businesses through tailored financial solutions, helping them understand their cash flow and funding options and ensuring they are well-positioned to seize growth opportunities.
Whether you’re in the healthcare industry and need timely supply finance chain solutions, you’re a labour-hire company with cash tied up in unpaid invoices or a manufacturer seeking new trade opportunities, we can help. Want to know more? Get in touch with the team today.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
