A common approach when looking for invoice financing is to send out as many applications as possible and then compare rates. However, there is a better way that will help you find companies that best fit your needs.
In the factoring industry the rate or the fees charged by the Factor. is generally equal to the perceived risk and the perceived cost of providing the service. The rate that a company charges reflects the perceived risk of not getting paid back and the perception of what it is going to take to manage the new account.
Therefore to get a lower rate you must lower your perceived risk in the eyes of the Factor and present a profession image so that management of the account will not be a problem.
How can I lower my risk?
1. Find a factoring company that is familiar with your industry, some factor know some industries very well and others no so well.
2. Be professional
3. Have a good application that is clear and provides all the information to support your application
Ask them! The majority of companies will have no qualms about telling you their specialties and what their average client looks like. If they have a good understanding of your industry they are more likely to give you better rates.
However, it is important that you do your due diligence by asking some key questions about your industry, so you can judge their understanding of your industry. Questions could be about industry specific procedures or about the companies that they already deal with in the industry. It is also in your interest to ask them to provide a few references that have been clients for more than one year.
Present a professional image: The factoring company needs to perceive your business as a well-oiled machine that is run well and does not have any significant problems. If you present your company in a professional manner, your perceived risk will be lower and the rates that are offered will reflect that.
Having a complete and well written application: Most factoring companies receive numerous applications every day and are accustomed to getting applications that are difficult to read, are missing information, or inaccurate. So, if you make the effort to present a complete,
Unpaid Sales invoices consumer precious working capital and constrain growth.
Here is one of many examples of how that working capital can be released by “factoring” those invoices so you can expand your business.
If more working capital would help your business, give us a call on 0467 299 303 or fill in the inquiry form on this page and one of our cash flow finance experts will contact you to discuss cash flow finance solutions
A small outdoor/indoor advertising company had established itself in a major Australian city. It was trading “okay” but was not breaking any records because it didn’t have sufficient volume. It didn’t have “critical mass”.
The cost of the fixed overheads of the business were only just being covered but the infrastructure was sufficient to support a business two or even three times the size of the current operation.
An opportunity arose where their most significant competitor wanted to sell, but the owner of the first business did not have sufficient capital to purchase their competitor’s business.
As the owner of the company had no real estate their bank would not offer them any funding to assist with the acquisition.
It looked like they would miss a golden opportunity.
An Accountant referred them to Nova Business Finance to see if Nova’s Cash Flow Finance Solution could facilitate the acquisition.
Nova Business Finance does not require real estate security, and instead utilizes unpaid sales invoices to provide funding and working capital to their clients.
This client had a substantial amount of unpaid sales invoices all of which were current and the majority of which were with solid national companies.
Within 48 hours of receiving the application, Nova was able to offer their new client a facility that allowed them to turn the bulk of the $200,000 sitting on their debtors ledger (that is unpaid sales invoices) into a sufficient amount of cash to fund the acquisition of the new company.
The client was able to complete the acquisition of their former competitor and merge all the operations into one business. As the client correctly assessed, they had sufficient infrastructure in their existing business to be able to operate both businesses. The marginal cost of the additional customers that were acquired through the new business was insignificant.
The client traded very well and within less than 12 months was able to repay the factoring facility in full and continue without the need for ongoing debtor finance.
This is another way that invoice finance or factoring can be used for business expansion. Not only is organic growth with factoring or debtor finance a very useful tool, but also converting the existing “asset” (being the unpaid sales invoices) into additional capital can allow a business to expand through acquisition of a competitor.
Here’s a link to an interesting article on starting a new business from one of Australia’s success stories.
A number of good points are made and it’s well worth the read.
In any business and especially a start-up business, Cash Flow is King – always!
Something many businesses use is debtor finance. That’s where the unpaid sales invoices of the business are used as collateral to accelerate the cash flow cycle.
Sometimes it’s called invoice finance or receivables finance and sometimes it’s called factoring but regardless of the name or title, it’s a very similar process which results in a business being able to pay its bills and expand at a much faster rate than it would be able to if it had to wait for the sales invoices to be paid.
Usually no real estate security is required.
If you think debtor finance or factoring can help you and your business, complete the enquiry box on this page or email us at email@example.com or call us on 1300 138 186.