Invoice finance is a way for businesses to borrow against funds owed to them by their customers. Outstanding invoices can be sold to a third party, who then take over collections or used as security for a loan or a line of credit.
There are many funding options for business owners in Australia. Different types of debt and equity finance are available and suitability depends on a number of factors. These include size and age of the company, turnover, level of debt and assets and the industry they are in.
And whilst many will turn to asset-backed business loans and overdrafts, accessing funds tied up in their accounts receivable may be the best option. It can help them fulfil orders, meet payroll, grow and cover day to day cash flow needs.
How invoice finance works
It works like this. You’ve supplied a product or service to another business and once the work is complete, they have 30 days to pay their invoice. During this time, you’re out of pocket. Invoice finance is there to cover that gap. Funds are usually secured against your entire invoice ledger and repaid once the debt has been collected.
Adoption in Australia
Whilst invoice finance in Australia is a growing sector, it currently lags behind other markets in terms of adoption and awareness.
The total size of the sector in 2017 was more than $75bn. Whilst this sounds like a large number, it actually only represents 3% of the nation's GDP - that number is almost 15% in the UK.
So why aren’t business owners using debtor finance facilities as much as their international counterparts? It’s probably down to awareness and availability.
Globally it is a seen a regular part of doing business and is on offer to small businesses by most financial institutions. In Australia, companies tend to rely on traditional credit to meet cash flow needs.
As a result, this puts Aussie businesses at a disadvantage on the international stage when it comes to trade, giving them less flexibility and resilience. They’re potentially missing out on a big opportunity to improve their businesses.
And cash flow is a big issue for our businesses. Whilst payment terms here are lower than the regional average (25 days), 84% of businesses report late payments from their B2B customers. And chasing those unpaid invoices can cost businesses $15,000 per year.
Invoice finance in Australia - options for business owners
Traditionally, there are two main types; invoice discounting and invoice factoring. They both allow businesses to access funds tied up in their accounts receivable ledger. Funds are extended pretty quickly and the total amount available grows as the business (and their invoice ledger) does. The main difference is:
- Invoice factoring - The entire ledger (or individual invoices) are sold to a factoring company. They then take charge of collections. They advance 70-85% and once paid, they remit the outstanding amount (minus factoring fees).
- Invoice discounting - The difference here is that the finance company stays in the background. They do not offer any help with admin or credit control, so clients remain unaware of the facility.
Where to get receivables finance - whilst traditionally the big banks have offered it along with other forms of business finance, there are now a multitude of options. The big 4 banks now have to compete with nimble and innovative fintechs such as Waddle who offer technological solutions they cannot compete with. See how Waddle is working with big banks.
The Waddle Difference
Waddle offers a modern form of invoice finance. We've built an innovative receivables 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!