Invoice Discounting Helps Small Business Manage the Temporary Cash Flow Crises
Recently, there seemed to be a CEO of a startup business to define his current exposure to his previous tenure at larger institutions. The metaphor he used was that your large industry is like a cruise ship whereas the small business is the speed boat. The small business (just like a speed boat) can more faster and it is more exhilarating but also carries the higher risk of getting thrown off course (or crashing) if your conditions change.
Just like the speed boat analogy, small business owners (captains) need to be extremely competent in keeping the business on track when it hits the inevitable difficult times. One of many areas that often expose a small business during a challenging period is cash flow.
The invoice discounting finance sector come as a possible aid of the earnings of small business. Invoice discounting is a financial service that enables SME’s to quickly raise working capital by using their accounts receivable. In Australia, customers particularly large companies pay invoices nearing sixty days and it is no surprise why “cash flow” is commonly highlighted by small companies as their major challenge.
As a possible added benefit, some financial institutions who offer invoice discounting can work which has a client only when they need the added cash flow support. The subsequent situations could bring benefit to your business:
1. Seasonality – their business has certain times of the year when cashflow will be under pressure due to the need to deliver services and goods at disproportionate levels; for example, many companies that supply to the retail sector find that orders and invoices rise in September as the retailer’s stock up before the Christmas season.
2. Financial bridging – Companies that are in a position where they are raising capital to bolster their balance sheet may use invoice discounting during the period through which they are completing this transaction. Businesses always underestimate the length of time required to complete the required research with prospective investors and having an adaptable line of credit available to “bridge” this period is significant to their survival.
3. Non-payment shock – The late or non-payment from a key customer can be a major challenge for a small business to soak up. Cash flow that was expected to pay staff and suppliers suddenly is not available which can send the business right into a troubling tailspin that can be difficult to recover from.
In several conventional situations, invoice discounting can help you, Starting a small business like driving a speed boat have a very thrilling feeling on the ride within the journey of building. The key is to have the right financial services in place to help them survive when the operating conditions become challenging.
For more information about invoice discounting, call The Interface Financial Group (IFG) at 1300 957 900.
