If you’re a business owner you know that cash flow is king. That’s if it’s doing well. Otherwise, it’s a serious pauper and your stress levels will sit somewhere through the roof!
Many business owners don’t realize there’s now a plethora of options if you do get yourself into this unfortunate position. And it may not be your fault either. One-off events like moving premises, having to remodel premises, rebranding or even just wanting to buy stock when it’s discounted…there’s many reasons you may need extra cash.
So let’s look at the options:
Unsecured Loans
It may surprise you to know businesses can apply for unsecured loans for up to two years, and it’s easy! It’s as simple as providing access to accounting packages such as Xero and your bank account statements, and voila up to $250,000 can be in your bank account within 48 hours. Sound too good to be true? We promise it’s the real deal.
Debtor Finance
If your customers are paying you within 60 -90 days, debtor finance may be an option for you. This basically means using your invoices as a line of credit (and how nice to leverage that pesky 90-day window for something good?!). You can draw down up to 90% of the value of the business’ invoices within 24 hours, giving you cash to pay wages and other expenses whilst you wait for your customers to pay up.
Purchase Order Finance
If you’re a business that orders stock regularly, either from within Australia or overseas, you can access purchase order finance. This means if you have an order from a customer, you can have a facility to pay for the stock (import it if from overseas) and deliver it to your customer. It only requires having 15% of the value of the order in cash and the rest can be borrowed. Before you know it the cash, and hopefully profit, is in your hot hands!
Stock Facility
Reverse factoring is a cool way of saving money and continuing to take large orders without having the required cash flow in the bank to make the product. Here’s an example:
Let’s say you make a product that requires steel as an input. A customer orders $100k worth of the product. You as a business have to order the steel, make the product and then invoice the customer with at least a 30-day payment term, thereby paying for the steel long before you get the cash from the customer. This may leave you cash poor or critical. Not where you want to be!
In this situation, the finance company can provide a facility whereby they actually pay for the steel upfront on the business’ behalf whilst negotiating a discount. So instead of paying $100,000 for the steel, they negotiate a 5% discount, only paying $95,000 on your behalf. Then when you go to input the steel into your manufacturing process you draw down on the finance facility and the 5% covers the cost of some interest and expenses.
Clever huh?
So don’t sit and wallow with the pain of the cash flow squeeze, talk to your broker about what options there may be to get you through…..sooner rather than later too, as we all know those persistent debtors don’t wait around too long!