COVID is continuing to impact the local and international economy causing VUCA
VUCA means, volatility, uncertainty, complexity and ambiguity. A consequence is that business owners are turning to invoice financing to fund growth and the purchase of new stock.
According to Daniel Riley, business owners are fed up having to jump through hoops to get the finance help they need to from banks to keep their businesses ticking over.
Daniel Riley is the co-founder and CEO of Earlypay Limited, an ASX listed company (EPY). Earlypay is an Australian customer-focused business financing organisation. It provides invoice financing, equipment financing and trade financing to Australian small to medium-sized businesses.
“Invoice financing has been around for many years. However, thanks to COVID and an increasing reluctance by the banks to offer business owners an easy way of accessing regular, reliable funds without having to put the family home on the line, it has surged in demand and popularity,” Riley said.
“Invoice financing is one of our busiest areas of activity, and it is helping business owners across the country to get through the pandemic, especially those that are having to wait months for their stock to arrive due to shipping and transport delays.
“In essence, invoice financing provides funding upfront to businesses for invoices issued to clients.”
Riley has outlined why invoice financing is ideal for businesses.
Simple to set up
“Invoice financing is very easy to set up. Once the facility has been established, the business simply generates and sends invoices as per normal. Copies of the invoices are then submitted to us, and we pay 80 percent of the value of the invoices to the business upfront,” Riley said.
“In fact, if the business uses Xero or MYOB Live, we can integrate the systems and automatically access the invoices directly.
“Funds are then automatically deposited into the business’ account. The business no longer has to wait for invoices to be paid or chase up debtors. That becomes our job.”
No real estate collateral required
“One of the main benefits of invoice financing is that it doesn’t require real estate security. Funding is advanced against the unpaid invoices, and the primary security is the invoices themselves,” Riley said.
“In effect, the business is simply paid funds it is owed, but upfront.”
Ideal for less than perfect credit or trading history
“Unlike the process of applying for an unsecured business loan where banks require business owners to lay out their life story and demonstrate many years of impeccable trading, the process of setting up invoice financing is far less onerous,” Riley explained.
“Invoice financing is ideal for businesses in any stage of the lifecycle, including growth and large established businesses. In fact, invoice financing is suitable also for businesses that have a short trading history, significant debts or a less than perfect credit history, which is a group often ignored by banks.
“Invoice financing offers the flexibility to suit just about any type of business as long as there is a system of invoicing in place.”
“The process of invoice financing is very discreet. Business clients simply pay invoices into a collections account set up in the business’ name which repays the outstanding finance, and the excess becomes available to the business,” Riley emphasised.
“Any follow-ups with clients are undertaken on behalf of the business as its accounts team. This ensures the invoice financing arrangement is kept confidential.”
Riley states that demand for invoice financing has increased by over 200 percent during the pandemic.
“Some of our clients are paying large amounts of money to place orders for stock that is taking up to six months to arrive in Australia. This is a long time for a business to have to wait in order to get a return on its spend. It requires deep pockets or the backing of a large established business to be able to cover this type of outlay — something most small to medium businesses don’t have,” Riley added.
“Invoice financing is enabling businesses to keep money coming in the door quickly and operations ticking over.
“COVID has created an extraordinary and unusual set of trading circumstances for businesses that traditional business loans are not set up to cover. Invoice financing, on the other hand, is more cost-effective as it uses the accounts receivable ledger of the business as security, making it less risky for the invoice financier.”