Beginners Guide to Factoring Financing

Business owners are happiest when they get paid by their debtors and they dread waiting for payments. The wait for payments costs business owner’s opportunities since the wait starves business owners of the much-needed cash.

How Factoring Finance Australia Works

Factoring finance Australia helps business owners to ease the pain of waiting for payments from debtors. Factoring finance Australia works by enabling companies sell their invoices to factors for the sums that are outstanding at a particular time. Factoring finance Australia does not take as much time since it does not have a lengthy application process like it would with a bank loan. The factor earns a fee when the debtor pays up.

 

The main benefits of factoring finance Australia are:

  1. As a business, you will free yourself of short term financial constraints that may arise due to cash being held by debtors.
  2. The business can continue running normally without being held down by trade receivables. It, therefore, acts as a good bridge financing option.
  3. Factoring finance Australia provides money upfront for the business to continue its operations without hitches. The funds can be used to fund the growth of the business.

 

Guide to start factoring finance Australia

Factoring finance Australia is certainly a good option to have in your business to access short term cash. As a beginner, you should consider the following factors:

  1. Companies offering factoring finance Australia. There are many companies offering to factor and you are better off looking at the ones in your local area as they are better placed to understand your business and also know your debtors.
  2. Cost. Factoring finance Australia comes at a cost to your company. The cost depends on the duration it will take for the debtors to pay the invoices to the factor. You should read between the fine print to determine whether your company has the ability to meet those costs.
  3. Duration. The duration of factoring finance Australia otherwise the credit period varies between debtors. The longer the duration the more the cost due to the time value of money concept. Therefore, you are better placed to offer invoices that are likely to be paid within the shortest time to lower your factoring finance Australia’s costs.
  4. Terms and conditions. There are other conditions that a factor may have and you should understand them very well. For instance, how to solve disputes should they arise and any other legal issues that may exist.

 

In conclusion, factoring finance Australia is a viable option for short term financing for your business.

 

 

 

Discovering Invoice Factoring Financing and Its Benefits For Your Business

It is expected that most businesses will face financial struggles within the first year. Thiscan be especially stressful if you are not an experienced entrepreneur. If you area contractor, financial pressure is especially stressful because it impacts your ability to take on other jobs. The case of a contractor not being paid means that materials cannot be purchased and you cannot grow your business.

 

At Nova, we understand that most small businesses are under a lot of financial pressure but it is also not normal to let this financial pressure affect how business decisions are made. So, if you are currently in this type of situation, there’s something you can do. You may think that borrowing money from banks and financial institutions is your only option but you can also sell your receivables. Selling your receivables is called invoice factoring and it is a well-known method to finance a business.

What is invoice factoring?

Invoice factoring is a factoring finance method wherein you will sell your accounts receivables to a third-party called the factor. Receivables are achieved when you sell your products and services to your customers. You exchange your goods for the amount they are going to pay in the future. Most of the time, vendors give terms to customers so they can enjoy discounts for paying the receivables early. However, not all customers can pay early even with discounts. There are times that you will have to wait for more than 30 days just to get their payments. As someone who is continuously running a business and trying to grow, this can affect your cash flow and your overall business decisions. This is one of the main reasons why companies are choosing to sell their accounts receivables in exchange for funds that they could have gotten from paying customers.

So, what are the benefits of invoice factoring financing?

First and foremost, it allows you to get the funds you need for your business. The main purpose of why you are selling your receivables is to get additional money to keep your business running. In regards to a contracting business, this means that they can purchase new materials and take on larger jobs and that the contractor is not waiting for the client to pay outstanding invoices to do so.

Additionally, if a contractor is paid consistently and on time, they are able to buy materials, take on new jobs, maintain a good reputation in the industry and grow the business organically. By using a factoring finance method, you’ll be able to get the amount you need in your hands.

Secondly, invoice financing reduces your hassle of asking your customers to pay. Invoice factoring is selling your accounts receivables to a factor. This means that you are transferring the responsibility of an AR owner. The factor becomes the owner of the receivables so he/she should be the one contacting your customers to pay. This saves a lot of time and stress that comes from communicating with customers.

Finally, invoice factoring will only cost you around 10-20% of the account receivable plus the factoring fee. If there are variances as to the amount collected, the money will be deposited back to you. Compared to the amount you are going to get, a 5-10% discount is not that big especially if you really need the funds for your business, you are able to take advantage of discounts and improve your reputation.

How Receivables Finance Gives You Working Capital For Your Contracting Business

Are you a contractor currently waiting on invoices to be paid so that you can pay clients? Receivables finance is your solution!

At Nova we do not believe in adding loans to your existing debts. We do believe in being resourceful and thinking of other ways that you can add funds to your cash account. We understand how important it is for a contractor to buy new materials and take on new jobs. Our receivables finance facilities will allow you to relive these financial burdens.

So how does it work? Receivable financing allows you to gain funds for your business by selling your accounts receivable. As a factor, Nova can buy your accounts for a discounted amount. Most of the time, you will get 80% of the total amount of your accounts receivables advanced to you when you submit invoices. Whilst, there are factoring fees that are attached to this service, compared to the amount you are going to receive, the discount and fees are worth it so that you can pay outstanding payments on time and maintain a reputable reputation as a contractor.

Working capital can be defined as the money that you require to keep your business running on a daily basis. The amount that your business requires can be computed using your current assets and your current liabilities. So, how can receivables finance help you get the working capital that you need?

First, receivables finance can provide you with a significant amount of cash, quickly. If you are short on cash and you need actual money to buy your inventories or pay your existing liabilities, you can rely on receivable financing. Your accounts receivable will be converted into cash that you can utilise for your everyday business activities and eventually for business growth.

 

Additionally, receivables finance allows you to reduce your current liabilities and improve your credit rating. Some debts can impact your business in a negative way if they are left overdue and in order to maintain or establish a good credit rating so banks and financial companies will lend you money in the future, you need to stay on top of outstanding debts. With receivables financing, you can pay your creditors now without applying for a new loan because it is never a good idea to pay a loan for another loan.

Overall, receivables finance can assist contractors to stay afloat and expand by providing you with working capital.

What is Factoring and When to Use It As A Contractor

Factoring is a type of finance where a company sells its account invoices to another company at a discount. Companies opt for this form of financing whenever they experience cash flow problems due to the failure of clients to pay on time for the goods delivered or services rendered. In the case of a contractor, this means that if you complete a job for a client but they do not pay you for this service for over 30 days, you can get a cash advance on this invoice so that you can continue to take other jobs and grow your business.

Each time the seller sends an invoice to his customer, the factoring company pays the seller at least 70 percent of the invoice value within 24 hours. The remaining amount will be paid once the customer has paid the invoice in full. In this case, the customer does not make the payment to the seller but the factoring company.

Invoice factoring is one of the forms of financing that allows you to grow your business over time without the involvement of complex credit committees or time limits. As a contractor as long as you continue to provide quality services to creditworthy companies, a factoring company can finance your business against eligible invoices within the shortest time possible.

There are several other services that factoring companies can provide to contractors. This includes providing well-detailed reports because many businesses lack a qualified in house bookkeeper who can compile transactions in an accurate and timely manner which allows business owners to adequately assess their business growth. Additionally, factoring companies can guarantee their customers credit protection against non-payment resulting from customer failure to make payments promptly or when a customer is unable to pay for the goods delivered or services rendered. Most businesses are unable to seek credit protection because of the high premiums it comes with. These credit protection services are available to their clients at reasonable rates.

Overall, contractors can sit and relax, knowing that there is cash in the account to cater for salaries and other expenses. It is understandable why invoice factoring is becoming more popular amongst business owners looking to expand their businesses but have access to limited capital, especially when other sources of financing involve complex procedures that discourage business in their pursuant.