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Fast Finance: Fixing Cash Flow Quickly

  • Written by Angus Sedgwick CEO of OptiPay

In a perfect world, Australian SME’s would be diligent with their cash flow forecasting and have enough money set aside to ride out inconsistencies. But even with the best foresight and planning, often businesses hit speed bumps when it comes to working capital and it’s important owners know their options when it comes to accessing financing in a hurry.

In the current climate, it’s very difficult and even if approved it is a time consuming process to obtain a bank loan so here are several other options when looking for a cash injection for your small business.

Invoice Financing

Invoice financing is the number one form of business financing in the United States, United Kingdom and Europe but is still misunderstood and under utilised by business owners in Australia.

Invoice financing allows a business owner to unlock the cash that’s tied up in their unpaid invoices. Think of it as being an advance on money owed from a business’ outstanding invoices – like a revolving line of credit. You are effectively unlocking the cash tied up in the accounts receivable ledger.

Typically, businesses can access up to 90% of the sale value of an invoice whilst continuing to offer credit terms to customers. The financier gets paid when the debtor makes payment so there are no repayments to be made which makes it a powerful form of business funding.

This type of financing works for any business that invoices another business for goods or services on credit terms. It’s especially useful for businesses with credit terms of 30 days or more such as those in wholesale, manufacturing, transport and logistics, labour hire and services.

Online Lenders

Online lenders can be a good option for businesses requiring a fast solution. There are many in the Australian marketplace and often they offer quick online approval without property security. However, the downside is they can be expensive and as it’s a loan make sure you can afford the minimum regular repayments. Avoid taking out multiple loans and finding yourself with a debt stack. 

Credit Card

This is a short term fix with long term pain unless you can afford to repay the full repayments each month. It’s risky and can lead your business into a cycle of debt. Make sure you understand all the implications if you choose to go down this path.

Personal Pockets

As the business owner you can lend money to your business from your personal wealth. If you have equity in your home and your mortgage allows for it, you could borrow money out of this and lend it to your business at mortgage rates. This is the cheapest form of capital however it comes with a high degree of risk. You’re risking your personal wealth for your business.

Sales/Leaseback Equipment

If your business owns equipment or other assets you may be able to unlock cash against those assets and use that money within your business. This is typically known as a “sale and leaseback” but be aware that you are converting an unencumbered asset into an encumbered asset. However this strategy may have tax benefits that need to be considered.

Delay Tax Payments

We saw this one during COVID, many Australian SME’s delayed their tax obligations to the ATO in order to maintain cash flow. However, whilst it may have provided temporary relief the tax office is now cracking down hard. This year, the ATO is calling in its unpaid debts as it seeks to recover the $50.2 billion owed to them. They’ve warned of ‘taking strong and deliberate action’ this year which means directors may find themselves personally liable for the payments.

For more information on invoice financing and how it may help your business with cash flow visit OptiPay

Angus Sedgwick CEO of OptiPay

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