Find out how invoice factoring can boost your business' productivity .
Having money you're owed tied up in unpaid invoices not only limits your ability to reinvest in your business, but also weighs on the productivity of you and your staff.
Cash flow pressures are not uncommon for business owners with 29% of SMEs reporting cash flow as a business pressure point in the January 2021 MYOB Business Monitor Report. In the same report, 25% of SMEs listed late payment from customers as an important issue. With late customer payments directly impacting business cash flow, business owners rightly spend a lot of energy managing their outstanding accounts receivable. There are, however, ways to 'outsource' some of these responsibilities which can reduce stress and give you and your team more time to focus on other aspects of your business.
If you struggle to get invoices paid on time and could do with the cash upfront to boost your working capital, invoice factoring could be a nice solution for your business. Invoice factoring involves the sale of your outstanding customer invoices for up to 80% of the value of the invoice value upfront. And when your customer pays the invoice, the balance is returned to you, less any fees charged by the invoice factoring business.
This type of business financing has been around for hundreds of years and is growing quickly in Australia. Some of the benefits are that no real estate security is required as the invoices themselves are the security and it's also an option for early stage businesses as there generally isn't a minimum trading history required. Beyond the benefits of the financing element of invoice factoring, there are also services that can help businesses be more productive.
How invoice factoring can improve your work productivity
1. Save you time chasing up invoices
Typically the invoice factoring business assumes responsibility for managing the collection of your invoices, including chasing up overdue invoices. This can be a great relief for business owners and staff who want to use their time in other areas and benefit from outsourcing this function to experts who specialise in collections.
The time saved by not managing collections can be significant. In fact, Small Business UK reported that the average SME in the UK is chasing five invoices at any one time, spending 1.5 hours a day to do so. By outsourcing your invoice collections to an invoice factoring company you can take that time and spend it on higher value tasks.
2. Credit checking your debtors for you
A common service associated with invoice factoring is that the factoring company will usually run credit checks on your debtors. This is because the interests of the business and factoring company are aligned in that you both want the invoices paid in full. You can therefore get comfort in knowing that the the credit has been reviewed by a specialist. The alternative is that you would have to do the credit checks yourself which takes time or that it doesn't happen at all, which can be risky.
3. Trade credit insurance
Similar to how the factoring company will check the creditworthiness of your customers, they can also arrange trade credit insurance to protect your accounts receivable against the risk of your debtors not paying. Given that the accounts receivable ledger is often one of a business' largest assets, many business owners consider this an essential part of their risk management. And because factoring businesses are often big users of trade credit insurance, they know exactly how to go about it and can probably obtain coverage at better rates that you could.
4. Invest in growing your business
By using invoice factoring, your business can receive cash flow shortly after invoices are raised. Whether you’ve been holding off on ordering more inventory, investing in equipment, or hiring new employees, invoice factoring can provide you with the funds you need to invest in productivity boosting investments to keep your business running efficiently.
5. Ease pressure on your business relationships
Chasing unpaid invoices can be an awkward and stressful situation for you and your customers. Pestering important business relationships for money can lead to strain between the two parties, and even damage the relationship for good.
By using invoice factoring, and outsourcing the invoice collections function, you can receive payment for those invoices without having the stress of hassling your important business relationships. And because invoice factoring companies are independent from the business, and very experienced in managing collections, typically the debtors are more responsive.
6. Factoring and online accounting
Earlypay is embracing the power of online accounting and now offers businesses using factoring services the ability to link Xero, MYOB AccountRight or Quickbooks Online. This allows the Earlypay platform to automatically access invoice information as the invocies are raised and paid, removing the need for manual ledger uploads. This can be a big productivity booster and is a big reason why invoice factoring is growing rapidly in Australia.
7. Minimise stress
Running a business is stressful and managing all the moving parts can sometimes be so overwhelming that you just can't think straight. With the lack of business cash flow and slow paying debtors being major contributors to that stress, more and more business owners are considering invoice factoring. It can be a great way to access the working capital you need to grow, while outsourcing some aspects of your business to give you and your team more time to focus on growing your business.
If you think that your business could benefit from invoice factoring, please sign-up at our website, call us on 1300 760 205 or speak to your broker or BDM.