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Although invoice finance has been around for centuries many business owners are embarrassed to admit to their customers that they use it.
It stems from a perception that a business which sells its unpaid invoices to raise working capital is poorly run or financially troubled.
More than likely the opposite is true.
Most companies which provide invoice finance simply won’t deal with businesses which are in trouble.
The risk of losing money is too high.
In reality, invoice finance, or invoice discounting as it was known to an older generation, is a tool used by business owners to capture opportunities and boost growth.
It is simply a strategy to get your hands on cash as soon as possible rather than having it locked up in your receivables while you wait for your customers to pay.
The added bonus is that because you are receiving payment (albeit from a third party) for service rendered, it doesn’t go on your balance sheet as a loan.
Invoice finance has become a mainstream alternative to traditional loans.
Last year, the Australian invoice finance industry turned over close to $62 billion dollars.
More than 6000 companies used invoice finance to raise working capital – most of them strong and on a growth trajectory.
According to the Debtor and Invoice Finance Association of Australia, the industry experienced an 8-fold increase in turnover between 1999 and 2010.
Think about this:
Isn’t improving cash flow by turning unpaid invoices into immediate cash a more responsible way of doing business than shackling your small business with more debt?
Why should somebody put their family home at risk to raise working capital when a debtor finance arrangement, which often requires no property security, will do the job?
It doesn’t make sense and wisely thousands of Australian business people agree.
Go on the front foot if you think your customers are likely to hold it against you because you raise funds by selling invoices.
Dispel their prejudice by reassuring them that you would not have been approved for funding if your business wasn’t sound.
Tell them that an invoice finance company is one of your management tools to ensure you always have adequate cash flow available to serve your customers and meet their needs.
If you are involved in a short-term single invoice finance arrangement explain that you are in control of the transactions and will determine when and how they occur.
If you have a long-term contract and finance your entire debtors ledger every month point your customers to the figures showing how popular and effective this form of raising finance has become.
Like many things we fear, our concerns are unfounded. Many first-time users of invoice finance begin the conversation with their customers only to discover that they also have an invoice financing arrangements in place.