Establishing a business will always come with pressure, but none more so, or more overlooked, than cash flow. 250,000 new businesses or start-ups are launched each year, in Australia. The start of a new business can be an uncertain time with many key factors influencing success – from writing a business plan to sourcing finance. Bank requirements will often make it extremely difficult for your new business to secure a loan. You’ll be asked to provide a wealth of information, real estate or personal property as security and maintain ongoing compliance processes for the potential outcome of small loan to get the business off the ground. This can (and most likely will) leave the new business starved for cash almost immediately, resulting in cash flow pressure from day one.
Let’s look at some of the various costs associated with starting up a company:
- Marketing costs
- Government costs
- Costs relating to new sales
- Wages
- Purchasing stock
That’s not to mention having to deal with competitive pricing strategies, the possibility of being under-capitalised or slower sales than forecast.
Cash flow from Day 1: How factoring and invoice finance can help.
New businesses realistically require working capital equal to the anticipated expenses for the first year of trading plus a buffer. More often than not this is unable to occur, so Invoice Finance and factoring become a very realistic option and a smart move for the business owner(s).
Factoring is a finance option that provides 80% of the value of a business’ invoices to be credited into a nominated account within 24 hours. The credit line is usually available against these for 120 days; considering that a majority of debtors will pay within a 45-75 day time frame, it provides the business with cash immediately and eliminates worry about when the invoices will be paid.
The bottom line:
- Factoring makes cash flow more predictable for businesses, startups in particular, eliminating concern over late payment of invoices of which customers often take advantage.
- A factoring facility will allow the business to immediately take care of costs and leverage sales to fund the business rather than investor funds.
- Factoring costs will be between 0.50% and 2.50% of your invoices plus interest.
To enquire about a factoring facility with FactorONE, or to discuss how invoice finance can benefit your business, call us on 1300 322 867.
