Cashflow finance is funding provided to a company backed by that company's future expected cash flows. It is different from an asset-backed loan, where the loan is secured by a tangible asset. Also known as a ‘cash flow loan’, cash flow finance is available for any solvent businesses.
Defining cash flow
Poor cashflow management is the number one cause of insolvency in small businesses. Failure to measure future expenses against future incomes can result in insolvency for an otherwise healthy and profitable business.
For business owners offering payment terms to their customers, cash flow issues can be compounded substantially. Waiting 30 or 60 days for payment force most companies to fund their operating expenses through some form of cash flow financing.
A cash flow solution
All businesses, large and small require funding at some point and cash flow backed loans are available to any business. They are a short term form of funding typically used for working capital or for business expansion.
Essentially, companies are borrowing from cash flows they expect to receive in the future. They do this by giving another company rights to an agreed portion of the receivables. This allows companies to obtain funds today, rather than at some point in the future. This allows them to maximise opportunities, grow the business or just to pay for operating activities.
The repayments for cash flow loans are based on the company's projected future cash flows. These are naturally considered riskier than a tangible asset and therefore cashflow loans generally demand a higher interest rate.
Cash flow lenders are typically focused on businesses with adequate levels of growth and margins. And whilst they vary in duration, longer loans are considered higher in risk.
Types of finance available
A fixed-term loan is the most common type of small business loan. It is repaid at fixed intervals over an agreed period. Also known as an ‘unsecured business loan’, this type of loan is considered high in risk and therefore demands a high rate. The rates can be reduced substantially should the borrower offer collateral as security. And whilst it may be wise to pledge company assets to reduce the cost of capital, pledging personal assets is considered poor practice.
Another option for businesses is invoice finance, also known as debtor finance or accounts receivable finance. An invoice is effectively the promise of a future, positive cashflow in writing. It can be used as collateral for borrowing funds. The credit limit grows with the business and funds can often be accessed quickly, usually in 24 hours.
For large corporations there are considerably more forms of financing available, from offering additional shares to bespoke loans from banks.
Choosing the wrong product for your business may further compound cashflow issues and put your business at risk of insolvency. Whilst choosing the right product may see your business grow to it's full potential.
The Waddle Difference
Waddle offers a modern form of receivables finance. We've built an innovative invoice finance solution allowing businesses to close the cash flow gaps that are holding them back. The Waddle platform seamlessly connects with cloud accountancy platforms, like Xero & MYOB and generates a finance offer within a few clicks.
Once approved, Waddle offers an instant line of credit based on your unpaid invoices, which is adjusted in real-time as they are raised and paid. You pick the invoices to fund and only pay for those that you draw down. And thanks to the cloud accounting integration, bookkeeping is a breeze with no invoices to upload and instant reconciliation.
It’s also fully confidential, so your important client relationships stay with you. And Waddle offers the friendliest terms with no minimum monthly spend, no contracts or hidden fees, giving you fast and easy access to working capital with minimal fuss. Get an offer now!