Cash may be king, but Australian tradies and small businesses have it tougher than most when it comes to getting paid.
According to a 2016 British study, the average amount of time it takes for an invoice to be paid in Australia is 26.4 days – the slowest rate among 80 countries surveyed [CB1]
With an estimated 90 per cent of small business failures caused by poor cash flow, Australian businesses’ poor record on payments is having a major impact on the small business sector, with late payment compromising the competiveness of small business as well as adding to administrative costs, reducing the potential for investment opportunities and damaging business relationships.
Fortunately, for cash-flow squeezed small businesses there is an alternative form of finance that can ease cash flow problems by turning unpaid invoices into revenue, known as invoice finance.
“Invoice finance can be useful for smaller businesses, who are doing work for large businesses with good credit ratings. The small business still needs to invest in materials or pay wages well before being paid by their clients. Larger companies tend to pay slower, at around 45 to 60 days, maybe up to 90 days, so they have a serious impact on the cash flow of smaller businesses,” says small business bookkeeper Wendy Thompson.
“The big four Australian banks have traditionally been very set in their ‘inflexible ways’ and they won’t take on risks a small business owner might take on. They only look at historical data from closed financial tax years and not at today’s current financial situation or new clients. This is why invoice finance has become a growing industry.”
How it works
Small business lender Prospa’s InvoiceNOW product offers eligible small business operators the opportunity to unlock all of the value of their unpaid invoices within 24 hours instead of 60 or 90 days, using an online system linked to Xero. Prospa’s finance is based on a three-month loan term, with 12 equal weekly payments.
Prospa’s system contrasts with invoice factoring, where the finance company typically purchases invoices at a set percentage rate, typically between 70 to 90 per cent, and then collects the debt directly from those customers. Instead, Prospa allows customers to choose which invoices to clear and the transaction remains private, and there are no hidden fees or penalties for early repayment.
Small business operators simply need to provide Prospa with access to at least three months of business activity within their accounting app to allow Prospa to assess the creditworthiness of the business. Customers can access funds against unpaid invoices within one business day. All data provided is secured using advanced bank-level security and encryption.
“Businesses who have seasonal or large lump sum payments from customers in well established sectors could benefit from this. If they are fast growing businesses with cash-flow savvy business owners, who know how to manage their company’s money well, then this might be a useful way to purchase large items or inventory,” suggests Thompson.
Getting paid within a day instead of 30 or 60? For any tradie, it sounds too good to be true, but thanks to the latest technology, it is now possible.
Talk to Prospa about how InvoiceNOW can address your cash flow worries and put funds in your pocket to pay your own bills, well ahead of schedule. Read more about InvoiceNow here.