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Getting Invoice Finance for Growing Your Small or Medium Business

November 23, 2017 Jake 0

As a budding or fledgling business in the city, you’re probably aware that you’re still on your crucial defining stages. Most of the businesses in Australia, from small to medium enterprises, usually fail in the first five years and this is because of poor money management. In capital cities, invoice financing is becoming a popular choice for SMEs for boosting capital or cash flow. It goes without saying: the invoice finance Sydney lenders provide are helping businesses sustain cash flow and eventually grow.

Invoice Finance Sydney

Defining Invoice Financing – How It Works

As you might have probably known, invoices are the lists of goods and/or services sold by your company or establishment.

If you’re a small business owner in Sydney, for example, and you want to make money from these invoices, then you must look for financial companies that offer invoice financing. Providers of such financial solutions can transact with any type of business, from medium-sized construction firms to small recruitment agencies.

What happens during an invoice finance transaction?

A transaction for an invoice finance in Sydney is explained through these steps:

  1. Invoice finance happens between the borrower (you or any small-to-medium company) and the lender (financial institution).
  2. During a Sydney invoice finance transaction, the sum total of these invoices or the outstanding sales ledger is reviewed by the lender.
  3. Next, after weighing its value and assessing the risk and validity of your clients and business, the invoice finance Sydney company can immediately provide you the cash you need to borrow based on the value (usually around 95%) of each of your business’ invoices. This means that you can now liquidate these to your pending payments and reinvest to the cash flow cycle immediately.
  4. Now, as you gain profit from your clients, you can pay the rest of your invoices.
  5. Once you pay all of the cash you borrowed based on that 95% value, the rest of your invoices’ value (the remaining 5%) will be given back to you by the lender.

Under invoice financing, there are also two types of transactions. To avoid confusion, you must know the difference between an invoice discounting and invoice factoring:

Invoice Discounting. This gives you control over the process if you want to maintain the confidentiality of the invoice finance Sydney agreement from your clients. This is the cheaper option since no work is required from the lender.

Invoice Factoring. On the other hand, this will give the lender more control on the process. The lender has a credit control department, who will meet with your clients and get them to pay. In factoring, you have more free time to dedicate to your other business transactions. Factoring is also for those small businesses who lack employees who can chase clients and collect their payments for the services or products they bought from you.

Non-Recourse Factoring or Discounting

The transaction fees for both of these will be reduced as your business grows and comes with fewer credit risks. However, you must still consider credit protection, called non-recourse factoring or discounting. In a regular agreement between the lender and the borrower, you will have to pay your remaining invoices if your client fails to pay. It means you will need to pay with your personal assets, which, of course, will give you additional headaches. However, if you pay a separate 0.5% or 2% of the turnover, you can ensure that the lender takes care of these contingencies.

If you want to find invoice finance Sydney has today, you may try visiting the likes of