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Invoice financing: A win-win
11:09 AM, 4 Oct 2019•3 minute read
Promoted by TIM Finance
Interest rates are at record lows in Australia, yet for small businesses, it can be a challenge accessing the funds they need to grow. The banking royal commission has resulted in stricter loan serviceability requirements and increased scrutiny of broker commissions paid by banks. TIM Finance CEO Angus Sedgwick outlines business financing solutions for brokers looking to diversify their product offerings.
The traditional debt model for Australian business is complex, time-consuming and inefficient. One might argue that it’s actually broken.
Interestingly, the first type of business finance chosen in the United States and across Europe is invoice finance. Why? Simple. It unlocks the value of the accounts receivable ledger on a client’s balance sheet by bringing forward the funds owed to them from their customers. And unlike traditional debt, there are no P&I repayments; funds are repaid when the debtor makes payment of the invoices on the agreed credit terms.
Invoice finance provides a revolving line of credit secured by the invoices issued by the business, so the more sales the business makes, the higher the facility can grow.
The reality of business in the modern world is that credit terms are a requirement to remain competitive, so while your client’s customers are using them as a bank, you can help them unlock that cash flow.
As a result, businesses can quickly access the funds they need when they need them. This means they can grow in confidence, without being constrained by the credit terms that they are required to offer their customers to remain competitive.
Meanwhile, brokers benefit from upfront and ongoing trail commissions, paid every time a client funds an invoice. It creates a valuable way to diversify their income stream, especially when many of their clients may not know about cash flow finance.
Trade finance – access funds to purchase inventory
While invoice finance brings forward the cash flow from a business’ sales, what solution is available for the supply side of the ledger?
A typical scenario is that a business wins a tender for delivery of a product but may not have the working capital to purchase the raw materials (or inventory) needed to manufacture the product and fulfil the purchase order.
That is where trade finance (aka inventory finance, purchase order finance and import finance) steps in.
TIM Finance provides a highly flexible revolving facility to pay the suppliers. Trade finance can work in conjunction with an invoice finance facility or stand alone, providing a financing solution for both the supply and sales side for a business.
Supply chain finance – offering early payment to business suppliers
Supply chain finance is a program that allows a business with multiple suppliers to use funds from TIM Finance to offer early payment in exchange for a discount. Generally implemented by medium-to-large businesses with 50-plus suppliers, it allows the buyer (being the TIM client) to pay TIM later whilst the supplier secures payments earlier, helping both parties improve their working capital position.
An Australian growth story
While not brand-new to Australia, the exposure of the cash flow finance industry to SMEs is still in its infancy. As a result, many small businesses simply don’t know it exists, and they miss out on the potential advantages it could bring them.
One company raising the profile of the industry is TIM Finance. Originally called The Invoice Market, TIM Finance has funded over half a billion dollars to some 350 Australian businesses since 2013. Invoice finance is just one cash flow finance solution that TIM Finance has brought to market, with trade finance and supply chain finance solutions also generating positive results for small businesses. Together, the flexibility they provide is good news for small businesses and brokers looking to diversify their product offerings.
TIM Finance takes great pride in providing cash flow solutions to our clients and educating the business community about the power of cash flow finance instead of the traditional debt model.
Any business providing goods or services to another business on credit terms can benefit from implementing a TIM Finance cash flow solution, whether it’s cash flow to support payment to suppliers, bringing forward cash flow from sales on credit terms, or both.
We’ve helped clients solve a range of working capital issues, from paying overseas suppliers for inventory to complete a sales order, to providing invoice finance on sales ledgers to domestic and international debtors. More and more brokers are discovering the advantages of cash flow finance, for both their clients and their own business, and I’m excited about the growth prospects.
To encourage more brokers to share the benefits of invoice finance with their business clients, TIM will pay double upfront commission for any new clients referred and funded before 31/12/19.
Just quote TIMADVISER | Call 1300 694 686
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