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Invoice Finance across Australia | Business Loans
Throughout Australia there are commercial facilities facing cash flow challenges because their customers take a long time to pay their invoices. Some customers may demand payment terms of 60 days or 90 days or in excess of 120 days and commercial enterprises may not have any option but to accept the terms or lose the trade.
Delays in debtor and invoiced payments can seriously impact the ability to meet its own expenses, wages and debts and to invest in growth strategies. Raising issues that may result in the organisation facing their own credit record.
Fortunately, the lending sector offers a workable and cost-effective solution – Invoice or Debtor Invoice Finance for Enterprises.
This won't affect your credit score
Explainer
Debtor Invoice Finance
- A specialised form of loan available.
- Provided by non-bank commercial lenders.
- Enables better management of cash flow.
- A loan product which attracts an interest component and a fee component.
- The lender pays a greater portion of invoices when the invoice is received and a lesser portion, the balance, at a later time when the customer has actually paid the invoice.
- The organisation is therefore paying interest on the amount of money the lender is covering for that period of time.
- In establishing this type of facility, to minimise the cost of the interest paid, commercial enterprises need to have a good idea of how much funding they require immediately, ie in the short term, and how much they can realistically wait to receive.
How it works
How Invoice Financing Works For Commercial Enterprises
Setting up Invoice Finance may vary from lender to lender but the usually accepted and followed procedure is as follows:-
- A commercial lending broker can, negotiate approval for an invoice finance facility with a specialist lender.
- Negotiations are similar to loan negotiations and cover the interest rate which will be charged, whether that will be at a fixed or variable rate, the fee to be charged by the lender, the terms of the loan facility and any conditions to be applied.
- The critical element to be agreed on is what percentage of the invoice the enterprise requires the lender to pay immediately on receiving that invoice. For example, the initial payment to be made by the lender may be 80% of the value of the invoice, or 95% or whatever the pre-agreed percentage is set at.
- When the enterprise completes work for a customer, an invoice is raised and sent to both the finance lender and the customer.
- The bank account into which the customer is directed to pay the invoice is an account at the enterprise lender’s facility but in the name of the enterprise .
- When the lender receives their copy of the invoice they pay the commercial enterprise the percentage as has been agreed on.
- The customer proceeds to pay the invoice in their usual payment terms.
- When the lender receives the full payment from the customer, they pay the balance of what is outstanding. That is, the final 20%, 5% or whatever value has been pre-arranged.
- The enterprise is charged interest on the amount extended for that time period.
- A fee is charged by the lender based on the invoice values.
Invoice Finance
Invoice Finance in Australia
Invoicing for an enterprise can be a saver for many operations. A relatively low cost solution to support cash flow. We have connections with lenders that provide this type of loan and we can share the contacts with you.
Connect with us for contacts with lenders that offer invoice finance in Australia.
FAQs
Invoice Financing
This commercial funding product is used by enterprises to get paid more quickly for the invoices they raise. It is designed to suit enterprises with customers that have extensive payment times on invoices. The funding allows the venture to receive payment on a portion of the value of the invoice when the invoice is raised to ease cash flow pressures.
This type of funding is providing to overcome issues associated with slow-paying customers. This funding provides a percentage of the value of the invoice from the lender at the time the invoice is raised. The balance is paid when the customer pays the invoice total to the lender. Suitability of funding products to a particular enterprise will be dependent on individual requirements.
This type of funding product is arranged with terms based on individual requirements. A percentage of the total invoice amount is paid to the business when the invoice is raised. The balance when the customer makes the payment to the lender. Timing of how much is received is dependent on the arrangements agreed upon between the lender and the entity.
Interest is charged on the funds which are paid initially, at the time the invoice is raised. The amount of interest payable will depend on what percentage of the invoice value is required at that time and how long the customer takes to pay the invoice amount to the lender. A fee for the service is also charged by the lender.
The most appropriate form of commercial funding will depend on the individual requirements of the enterprise. These issues may be discussed with the accountant. Overdraft can be a flexible and versatile product which can be arranged as an ongoing draw-down facility. This may be used to cover timing between issuing and receipt of invoices. It may also support an operation during quieter or lower income periods. Invoice Finance is a specialist and specific product which directly addresses the timing of payment of invoices. The two products have differing purposes.
Operators can consider a number of issues when deciding what percentage of the invoice value to be requested in this facility. The income required to support the venture and cover costs until the full amount is received is a key consideration. The percentage can vary depending on individual requirements and is agreed by negotiation with the lender.
This type of funding is designed to provide a set percentage, not the full amount, of the invoice value at the time the invoice is issued. The amount required is considered by the operator and negotiated with the lender. Where a larger percentage is requested, more interest would be payable.
This type of funding facility includes interest payable on the funds provided and a fee from the lender. The interest payments and the fees would be considered as tax deductible commercial expenses.
Individual requirements of an enterprise will determine the suitability of this type of funding solution. This is a specialist product, structured to address a specific need of creditors receiving a portion of outstanding payments promptly. Where the funding needs of an enterprise are more broad and stem from other issues, alternative products may be considered. Cash flow issues may be addressed with an overdraft facility or a secured or unsecured loan.
This is a specialist funding solution for enterprises and may not be available in the portfolio of all lenders servicing the business market. Non-bank lenders that specialise in more specific and targeted solutions offer this product. Commercial enterprise owners may seek to engage a finance broker to source this solution.
The costs involved in utilising this product are the interest payable and the service fee. Lenders charge a fee for the service. These fees vary with different providers. Interest is charged on the funding extended and will be dependent on the time the customer takes to finalise the invoice payment. Interest rates are negotiated on an individual basis.
All kinds of commercial enterprise may discuss this type of funding arrangement with providers of this service. Lenders will have their own guidelines in regard to the size of the clients take on. This may be determined by the value of the invoices individually, in dollar amount or in quantity per month. SMEs may consider seeking assistance from a finance broker to source a provider that meets their requirements.
This is a very specialist funding product and is individually tailored to suit the needs of individual operators. The length of time the arrangement is in place may be negotiated with the lender. This facility may be established as an ongoing arrangement or for a specific timeframe. The terms agreed will depend on the lender.
The amount of interest charged will depend on the percentage of the invoice value requested in the first payment from the lender and time the customer takes to pay the lender the balance. The shorter the timeframe for the customer to pay the lender, the less interest would be payable.
