If you’re a small business owner then you’ve probably found yourself stressing about your cash flow from time to time. There’s probably not a business owner around that hasn’t faced a cash flow issue at some point or another.
And when that happens, the usual options are to borrow from yourself or not pay yourself, ask your business partner to put in money or to max out the credit cards. All of which can work in the short term but there is also another way forward you might not have heard of – debtor finance.
Debtor finance involves giving your invoices to a cash flow finance provider who will then pay you up to 80% of the invoice’s value within 24 hours – and they collect on the invoices from your clients.
Used appropriately, it can go a long way to improving cash flow. Used badly or for the wrong reasons, it means you’re essentially working at significantly discounted rates.
There are essentially two reasons why you’d consider debtor financing;
Cash when you need it – with debtor finance you can get access to the cash you need in as little as 24 hours. With the convenient speed of debtor finance you will be able to pay bills or staff without penalties or prevent yourself from losing customers because you don’t have enough stock available or losing that big job because you can’t purchase materials.
Improved cash flow can lead to improved business growth – if you only have a small amount of cash on hand you may find your business growth follows suit, in that it too is small. Debtor finance may help improve your cash flow in the short term, which could ultimately improve your cash flow in the long term. With improved long term cash flow, you’ll have more opportunity to grow your business by hiring more employees or by physically growing the size of your business or your customer base. What ever you decide to do, more cash generally means more growth, if used right!
Now of course you can’t fully rely on debtor finance to get a positive cash flow happening. It’s important for you to budget, minimise expenses and maximise profits through other business functions such as marketing, reviewing costs, etc. And debtor finance, like all things financial, is not to be undertaken lightly.
The most important take away, though, is that having a positive cash flow can go a long way in helping you reach your business goals.
Of course if you need some advice on maintaining positive cash flow or taking on debtor finance we’d love to talk to you. You can call Kerry on 6023 1700, drop us a note or connect with Kerry via LinkedIn.