Building business without waiting for customers
While the minimum turnovers required to qualify for invoice financing vary depending on the lender, rarely does it make sense for a business owners to use invoice financing if they’re generating less than $100,000 a month. When turnover is less than expected, business owners will likely be subject to steep costs and can often end up paying for money they haven’t yet generated. Also, don’t expect invoice financing to be the remedy for bad debts. Good debtor management is essential throughout the financing process.
The best advice for any SME considering invoice financing is to do your homework and consult your accountant. The latter will guide you on how much funding is necessary, whether invoice financing is the best choice, or if it’s even necessary at all.
Amable Management Services’ Pollard insists on being completely honest with your lender. Don’t make the mistake of glossing over your finances because it will erode trust and lessen the likelihood of the lender’s support if you end up in a tough spot.
Still, be wary of finance offers because as one invoice company executive warns, “There are far too many smoke and mirrors in this business. And when there are lots of mirrors it usually means someone wants to hide something that’s not in your interest to see.”
Gavin Dixon is the CEO of Reckon Limited’s Business Division in Sydney. Reckon is the supplier of QuickBooks and Quicken accounting and financial management software. http://www.reckon.com.au
We are seeing a large proportion of clients taking on our full service factoring product largely due to the collections service that is provided with a full service facility. Chasing debtors for payments and the task of sending out invoices and making sure the debtors are receiving them correctly needs to be done properly and consistently. The most common theme I see amongst very small businesses is their inability to consistently make those important follow up calls to make sure things are being paid on time, due largely to the time and cost of the task.
Great topic, Factoring used to be a risky path to take for small business given the control the providers would have over them, often requiring personal guarantees or property. It was also difficult to reestablish your business and trade without factoring.
The financial institutions offering factoring these days have improved their reputation and small business can be a benefit not just to help cashflow, the time saving and invoice management, but to allow growth without costly, inflexible overdrafts.
Highly informative article which would be very useful for someone looking to startup their own business. With the economy in such a mess at the moment it is harder than ever to make a success of a new business venture and financing is such an integral part of it.
I agree with the article in that a solid and reliable accountant is a must. You have to make sure that funding and lending is viable and can be paid back appropriately.