Business Finance Archives | Page 5 of 5

How Can Invoice Financing Help Your Business Grow?

Posted on November 28, 2017May 20, 2024 by Duncan Khoury

Kate Carnell, Australia’s Small Business and Family Enterprise Ombudsman has been quoted as saying sluggish payment times for small business suppliers are “the biggest source of anxiety” for the sector.

And while the Greens plan to introduce legislation later this year to enforce penalties for corporations who make late payments to small businesses, this is only one of the stresses small business owners have to face when it comes to managing their monthly budgets.

The good news is there are solutions to stagnating cash flow that exist already, and which you should be tapping into, to help ease any short term liquidity blockages that stem from business variables outside your direct control.

And thanks to innovation in the financial lending sector, these solutions are increasingly affordable and easy to access. Invoice financing is one of these financing options and is a lending model that is rapidly growing in popularity locally.

While an estimated 1 in 5 UK businesses doesn’t know about invoice finance, in Australia the sector is undergoing rapid growth thanks to a boom in technology-driven offerings across the banking and non-bank lending sector.

In fact, a recent KPMG report on alternative financing in the Asia Pacific region found invoice finance is now the third largest lending type in the alternative market, with growth of 24 percent in 2016 to US$129.91 million.

How does invoice finance work?

Invoice finance is designed to help you make your unpaid invoices liquid sooner, so you can put that cash towards growing your business. Unlike a standard loan, you are not taking on debt, simply freeing up capital already owed to your business. For this reason, it can be an attractive and manageable funding mechanism.

There are two distinct flavours of invoice finance – factoring and invoice discounting. One of the primary differences between the two is whether the collection of invoice payment remains handled by you or by your finance provider.

How does invoice factoring work?

In simple terms, factoring involves your business selling invoices direct to a financing company for slightly less than the total amount owed. The factoring business then contacts your client directly to collect the final payment, passing what remains through to you, while retaining a small amount as their fee. Factoring essentially takes the entire collections process off your hands, and your client is fully aware of their involvement in the managing and handling of your sales ledger.

While some businesses are happy to outsource this administrative overhead, others prefer to remain as the single touch point for a client across all aspects of the relationship and keep any financing arrangement they have in place with a third party confidential. This means invoice discounting can be a more attractive, alternative option.

How does Invoice discounting work?

Invoice discounting is a confidential service that allows your business to receive a cash advance against your outstanding invoices. Unlike factoring, with an invoice discounting arrangement you are still responsible for collecting payment direct from your customers.

As a general rule, most invoice financing companies will advance anywhere up to 85 – 90 percent of the invoice, however depending on your credit history or the size of the invoice, this may differ.

Rather than outdated paper-based models, tech-enabled invoice financing companies now allow business owners to upload their invoices onto a online platform, with up to 85 percent of approved invoices able to be financed within 24 hours.

You can learn more about the benefits of invoice financing here.

While both invoicing discounting services and factoring businesses do charge a fee, the free flow of capital back into your venture allows you to jump on growth opportunities as they arise. You need to do your numbers to understand if this sort of cost is worth incurring based on the potential profit that can be generated from opening growth channels sooner.

How do I know if invoice financing is right for my business?

Before you start researching the market for invoice financing providers, it’s important to identify if this type of financing arrangement will suit your business and growth objectives. Luckily the checklist is small. Typically speaking, if your company offers payment terms to buyers, is seasonal in nature or perhaps contracts to corporates who can dictate longer than average terms, then invoice finance can be the cash flow smoothing hero you’ve been looking for.

Wondering if your peers are active consumers of this type of finance? Well, according to Real Business Rescue, the most common industries using invoice financing include professional services, construction companies, logistics providers, manufacturers, print and publishers, recruitment businesses, companies in the transport industry, wholesalers and security companies.

Ready to take the next step?

If this article has resonated with you, and you’re ready to tap into your own capital sooner to grow your business, it may be time for you to start evaluating potential invoice finance providers. As a starting point, Octet offers a range of debtor finance options, including invoice discounting and factoring, and all available online. To learn more get in touch with our team today, who can also help you compare to other finance options on the market.

Secured vs Unsecured Loans – Choosing the Right Business Finance

Posted on November 14, 2017May 20, 2024 by Duncan Khoury

Getting your head around financial jargon is just one of the many challenges you will face as a business owner.

And if you’re on the hunt for credit, then secured vs unsecured loans is probably one of the many phrases you’ll find yourself typing into Google late at night, as you try to work out what is the best option to finance your growth.

But to save you some time navigating banker jargon, we’ve explained the key differences between these two types of credit below, plus we take you through some key considerations when weighing up the two options.

What’s an unsecured loan?

An unsecured loan is credit extended to you by a lender over which no security is taken. That means if your business fails to pay back the loan, the lender has no ability to force you to sell assets the business or you may personally own, in order to recover any money owing to them.

You’re probably thinking, that’s pretty risky, why would a lender offer this sort of unsecured finance? Well, every lender has a different credit policy, which is a set of rules they use to determine if your business fits the profile of companies they would be happy to lend to.

Many niche lenders that operate in certain verticals understand certain business models better than generalist lenders (like banks) and build specialist lending businesses off the back of this.

This means they can feel more comfortable taking on the higher risk associated with unsecured lending and offer a market competitive price.

Having said that, it’s highly likely you will still be assessed at a personal level, and some lenders will take your personal creditworthiness into consideration before lending you any money for business purposes.

In some cases, they may also ask for a personal guarantee from a director. Remember, if this is you, then it does mean you are personally liable if the business fails to meet their repayments. Always read the fine print!

What is a secured loan?

A bank or non-bank lender will offer you cheaper business credit if you have an asset you are willing to back your loan agreement with. In the industry, this asset is often termed as ‘collateral’ and forms the foundation of a secured loan.

In this scenario, you are entering into a contract that gives the lender the power to take and sell the asset you put up as collateral should you not be able to make your loan repayments.

Because this ensures the lender has a much better chance of recovering money owed to them, they are comfortable to lend to you at a lower rate than in an unsecured scenario.

Depending on the credit policy of the lender, collateral that might be considered could be an owned commercial premise, machinery and equipment, investments or future payments from customers receivables.

However for many small business owners, the collateral most often in demand is the family home.

When this is the case, if multiple directors are involved in a business it can be difficult to agree upon who should take on that risk, and how they should be compensated for doing it.

In some instances risk can be spread, however it’s important to remember that if things do go belly up, the director with the deepest pockets could be the last person left standing to shoulder the burden of the debt.

So when taking on a secured loan in a multiple director situation, legal advice is a worthwhile upfront investment.

How to choose between the two?

If you’re in a position where you have assets and you can choose, consider yourself fortunate! Many young business owners just starting out often don’t have assets they are able to use to access secured finance, and are forced to take up unsecured loans or use personal loans and credit cards.

Choosing based on price is where most people begin. Lenders invariably charge more for unsecured loans, to compensate for the higher risk they take on. The best analogy from personal lending is a credit card versus a home loan. A credit card is unsecured personal lending and can cost you upwards of 20 percent per annum, while a mortgage, which is secured against your home, can have rates as low as 3 or 4 percent.

But while the price is an important factor, the risk you and your business assume as part of a secured lending contract should also be taken into consideration. Sometimes access to unsecured finance, while slightly more expensive, is a better option than using collateral to get a slightly better price.

These sorts of decisions reflect your own attitudes towards risk and often the relationship you may have with other business partners. And with more and more niche lenders coming on the market, unsecured finance is starting to become a more financially feasible option as well.

If you’re ready for a more in-depth discussion on which type of loan is right for your business then contact the team at Octet today.

Is your business ready for a business finance loan?

Posted on November 7, 2017May 20, 2024 by Duncan Khoury

Bootstrapping your business by funding growth from personal finances and early stage revenue is often seen as the ‘right’ way to grow your company.

And while there can be a real sense of achievement from knowing you built an empire off the smell of an oily rag, it often limits your ability to supercharge your growth, preventing you from taking advantage of business opportunities before your competitors do.

That’s why many savvy, small business entrepreneurs now understand that with a little modelling and careful budgeting, it is possible to combine a bootstrap mentality with a sensible amount of strategic financing. In fact, the right business loan at the right time, structured in the correct way, could allow you to get the best of both worlds, helping your business get where it needs to be faster.

So if you’ve been bootstrapping for some time, how do you know whether you’re ready to take on your first business finance loan?

Be honest about where your business is at

The first step is to evaluate where your business is at. Taking on debt to recover from business losses is not an ideal position to start from. Instead, your business should be generating solid revenue month on month, and operational and customer acquisition costs should be fully understood and under control. If you’re not there yet, this is the first sign you probably need to bootstrap for a little bit longer, to get into a position where the growth engine is humming nicely.

1. Build a plan

A business without a plan is a business without direction. So before you contemplate approaching potential lenders, you need to have a firm idea of exactly what you need a business loan for, and how this debt investment will translate into revenue and profit.

A great example of where businesses look to invest is in growing their top line revenues by bolstering sales efforts. If you have a solid handle on your acquisition costs from your bootstrapping days, then it is safe to assume this spend is under control. Putting a business loan towards acquiring new customers should, therefore, generate a predictable outcome with respect to additional revenue and profits, with minimal variability and risk.

While you’ll pay a slight premium to acquire future customers due to the interest that builds upon the money borrowed, chances are additional scale in your business through new customers could reduce operational costs elsewhere, netting off the costs of borrowing.

Having this plan will not only give you more confidence in your ability to manage a business loan but will also ensure you are on the front foot when getting quotes from potential lenders. And it’s worthwhile remembering a solid business case will ensure anyone financing your business can quickly evaluate the risk and payback period, both important factors when it comes to you negotiating a great rate.

2. Work out which business loan is right for you

If you’re a first-time business borrower don’t be embarrassed if you’re confused about what a business loan is, or how it’s preferable to financing your business through credit cards, a personal loan or an existing mortgage.

Typically speaking, a great small business loan works with your cash flow, not against, understanding the ebbs and flows of your business. And unlike drawing down on an existing mortgage, some business loans will not require you to secure the funds against a personal asset, which can relieve stress on a variety of fronts.

How do business lenders do this? Well, while there are many types of basic, unsecured business loans on the market, it’s also possible you have assets in your business that you never even realized could be used to help you secure a business loan. One example is invoice finance which uses your unpaid invoices as an asset to help you secure finance.

3. Choose your lender wisely

New technology players in the fintech space are also transforming the specialized online business lending marketplace.

Compared to a ‘one size fits all’ personal credit card or loan, these data-driven finance solutions can be a game changer for your business, speeding up the application process and generating tailored rates. Octet is one such lender pioneering this sort of approach. Octet offers innovative financing solutions that simplify business finance and allow you to pool your trade and invoice finance with your existing credit card limits for supplier payments.

In Conclusion

If you follow these four steps when considering if your business is ready for a business finance loan, then you’ll be well positioned to graduate from a bootstrapped business to a high growth venture. And given there’s no time like the present, why not get started today?

Interested in learning more about the various types of finance Octet provides? Get in touch with our team today.

Six tips startups should consider before working with suppliers in Asia

Posted on January 14, 2017May 20, 2024 by Duncan Khoury

It’s not always smooth sailing for startups planning to work with a new market. When it comes to markets like China and other Asian countries, there can be significant challenges for any startup not versed in the business culture or intricacies of that market, such as the negotiation of payment terms, quality of stock and fraud prevention.

For those looking to work with suppliers in these markets, we’ve put together some advice that you may want to consider.

Don’t rush, scale slowly

Without a proven track record, startups often have to negotiate with sceptical suppliers. In most cases, suppliers will require a percentage of the purchase order up-front, with final payment due when goods are ready for delivery. Do not be embarrassed to ask for a cash settlement discount in these cases and ensure you’re getting the best possible outcome.

Once the first transaction has taken place and supply chain finance has been replenished, startups can continue to build the quantities of orders with the supplier, eventually leading to more flexible payment terms.

Don’t let quality slip

It’s important to ensure the product you’re looking to purchase is of sound quality before entering into a contractual relationship with a new supplier.

The best way to do your due diligence when dealing with a new supplier is to get references from existing buyers, and request a sample of each product you plan to order before you enter into a purchase contract and make the initial deposit payment. Although the sample should dictate the standard of each unit ordered, it’s a good idea to start with orders of smaller quantities, allowing you to review the quality of each order or product.

It is also extremely important to ensure the supplier is capable of delivering the supplies you’ll need as your business grows.

Keep your options open

Don’t just rely on one supplier even in your growth stage — any disruption they experience will then be passed on to your business.

To minimise the risk, explore a selection of suppliers, even if you only select one supplier to engage with in the end. This way you have an idea of what other suppliers you could work with in the market, without making sacrifices on quality, should any unforeseen circumstance occur with your current supplier.

Familiarise yourself with your supplier

When you think about the ideal customer or partner for your own business, it’s usually people who are friendly, transparent, reliable and pay within set terms.

Your suppliers are no different. Whether you’re engaging with a new supplier, or there is a long standing procurement relationship with the supplier, ensure you keep in regular contact and make the effort to visit them at least once a year.

Be aware of cultural values and attitudes

Do some research on cultural traditions, such as etiquette, language, and customs practiced by the supplier in the country you’re dealing with. Demonstrating an understanding of these go a long way to make your supplier feel at ease and respected, and also ensure business runs smoothly. For example, a religious or national holiday may impact supplier output.

In addition, it’s important to take into account the nature of the country you’re working with: is it an established market? Is it a specialist market? The answers to these questions will help distinguish whether you’re in the right place.

Don’t be afraid to seek help

Engaging with suppliers in a new market can be risky, so it’s understandable that some small businesses opt for a sourcing company to help show them the ropes.

For a fee, sourcing companies will work with you to identify the right market for the supply you seek. They also help negotiate pricing, order samples and on some occasions also take you out to meet the supplier in person.

Stepping out and engaging with a new market such as Asia takes courage, but for many businesses it’s a risk worth taking.

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