How SMEs can leverage invoice financing to build sturdy brands

If you’re running a successful small or medium sized enterprise, chances high that at some stage you will be struggling with cash flow. In most cases, businesses who come to us are in a period of growth and are wanting greater accuracy in their cash flow budgeting.

Invoice financing is about accessing tomorrow’s cash today. Instead of a business having to wait 30+ days to be paid by their customers for goods or services delivered, invoice finance allows businesses to access up to 90% of the amount invoiced to their clients upfront, with the balance less a small fee received when the client/debtor pays their invoice.

Businesses can typically access up to 90% of their sales revenue within 24 hours of issuing the invoice. Unlike more traditional business loans there are no ongoing repayments back to the financier as they are repaid when the debtor makes payment of the invoice/s. The fee paid to the financier usually ranges from <1% up to 3% of the invoice value.

What should you know before debtor financing?

Things to ask before deciding on a debtor financing company

  • How transparent is the contract (is every fee and charge disclosed)?
  • Does the financing company match your funding cycle needs?
  • Are there any hidden charges?
  • What are the advance rates specific to your industry (this can vary from 70% to 95%)?
  • How much flexibility does the company provide?
  • Is there a monthly minimum amount that you need to finance or a minimum monthly fee you need to pay?
  • Are you satisfied with the total rate that the company is offering you?
  • Is it a disclosed or undisclosed facility?
  • What has been their turn around time from first speaking to them until receiving their funding offer – long time frames reflect what their ongoing customer service will be like.

In the United States, the UK and Europe, invoice financing is one of the most utilised types of business finance due to its ease and flexibility of use, whereas in Australia it’s estimated that less than 5,000 SMB’s out of over 65,000 eligible businesses utilise invoice funding.

As we start to see further pressure put on global supply chains, we’re expecting more businesses will start to implement contingencies for delays. They will require cash to do this.

Unfortunately the reality is the majority of SME’s are not strong cash flow managers. Using your funds efficiently is the key to providing the environment your business needs to succeed, as well as avoiding a recurrent cash flow problem in the future.

How can you make the most of invoice funding?

Here are a few ways for business leaders to make the best of invoice funding.

Figure Out Your Needs

You need to prioritise your cash flow needs. Which areas of your business need more cash and why? If you’re running behind on payroll, tax or debt that should be taken care of first.

When you have the basics covered, what other areas would benefit from a cash injection? Often our clients chose to increase inventory levels and purchase more supplies to generate additional sales. Another tactic used is to draw up a list of candidates in order of financial impact and then allocate cash progressively down the list as it becomes available.

Don’t Splash the Cash

You want to use your cash flow wisely and satisfy opportunities without wasting it. Focus on nailing the basics first and then invest in riskier growth initiatives if your cash flow allows. Invoice finance is also one of the best ways to go about funding a new venture because, unlike a bank loan, there are no limitations on what you can use the money for.

Be Patient and Calculated

While invoice financing is one of the best ways to improve your cash flow, it is not a miracle. You need a clear, patient mind to be able to figure out priorities and reign in aggressive spending. Don’t rely on the cash generated from finance to run your business on its own.

Calculate what the best option may be when it comes to investments and don’t make rash decisions on the spot. For every SME the vital thing is keeping your existing clients happy.

Eyes on the Prize

While solving short term cash flow issues may be the immediate priority, successful small and medium sized enterprises (SMEs) often think beyond today, they plan ahead for the future. Without a long-term business plan, your business may not exist at all in five years time.

Invoice financing is an opportunity to free up capital for longer-term strategic investments. Consider investing in areas that will build your brand and efficiency beyond paying suppliers and securing inventory. How would upgrading your Customer Management tech improve feedback? Would spending money on a greater social media presence elevate your brand?

Keeping your eyes on the broader prize is critical to getting the most out of your operations.

Keep your Team in the Loop

Your staff are often your greatest asset. Keep them involved in the decision-making process. Service-facing staff are the eyes and ears to your customers. What are they saying?

What customer preferences are they observing? What do they not like? Employee morale is another qualitative measure that goes beyond the bottom line. Invoice financing should improve the holistic health of your SME, from the financials to processes and to people.

There is a broad range of businesses who can benefit from invoice financing, particularly those who have credit terms of 30 days or more. Our services are popular amongst wholesale, manufacturing, transport & logistics, labour hire, and services businesses.

Essentially any business that invoices another business for goods or services on credit. We are not a factoring house but we’re here to help and make the process more efficient.


Angus Sedgwick is the Chief Executive Officer of Optipay