Factoring Versus a Business OverdraftAug 11 2020 in Invoice Factoring
Cash flow is the lifeblood of a business. Whether you’re a start-up or an enterprise, you cannot thrive without a positive cash flow. But the reality is every business faces cash flow challenges at a certain stage of their business. Whether it’s as a result of a downturn in the economy, seasonal issues beyond your control, unexpected expenses, slow-paying clients, or in the current climate, a pandemic.
In this article, we will examine 2 funding options businesses are using to improve their cash flow, and what to take into account for each.
1. Business overdraft
What is a business overdraft?
A business overdraft is a pre-approved line of credit that allows you to draw more than your available balance. The definition of an overdraft is taking out more than what is in your account. Similar to a credit card or a business loan, interest is charged based on the amount of credit you use.
What fees and charges apply for a business overdraft?
A business overdraft normally comes with an application fee or establishment fee, interest, account keeping fees, and an over-limit fee if you exceed your limit.
Security requirements for a business overdraft
A business bank overdraft can be secured or unsecured. Normally a business overdraft with a limit higher than $50,000 would require security by the banks.
Secured business overdrafts normally require a charge over residential properties, commercial properties, or blanket security over all the company’s assets. The issue here is that when said security is in place, you are fully locked into dealing with that one lender outside of the purchase of further fixed assets. Noting that although potentially being able to purchase fixed assets under a lease, the bank still requires their input as far as annual reviews, etc. to determine ongoing serviceability requirements. Once those fixed assets under finance have been repaid, they fall under the blanket security charge the bank[s] have in place.
What is factoring and how does it work?
Factoring allows you to unlock cash from your accounts receivable and improve your business cash flow. It helps businesses to cover the gap of late payments and provides instant access to funds instead of waiting up to 90 days for their clients to pay. BCashflow Positive factoring can convert your unpaid invoices into cash, in 3 simple steps:
1. Invoice your clients and send BCashflow Positive a copy.
2. BCashflow Positive will advance up to 90% of the invoice value in as quick as 4 hours.
3. We will credit you the remainder less any accrued fees when your client pays us.
How much does BCashflow Positive factoring cost?
BCashflow Positive is transparent about fees, so there are no surprises. We charge 1.8% for the first 30 days, and 0.06% thereafter for up to 90 days. There are no other hidden fees. Give our fee and funding calculator a go to see how much funding you can get, and how much it is going to cost.
Approval and security requirements for BCashflow Positive factoring
Unlike a secured overdraft, where a charge is over residential properties, commercial properties, or blanket security over all the company’s assets, BCashflow Positive factoring only places a charge over the accounts receivable. Factoring gives businesses the freedom to seek other sources of finance, if required, to support their growing business.
BCashflow Positive does not charge an application fee and approval can be in as quick as 24 hours.
What businesses or industries is factoring suitable for?
Since factoring primarily focuses on the quality of your accounts receivable and the paying capacity of your clients, it is very appealing to start-ups or growing companies with a large number of customers on accounts. Factoring is also suitable for industries with long sales cycles such as manufacturing, labour-hire for the health sector, commercial cleaning, business services, and wholesale, to cover the gap of slow payments.
Factoring compared to a business overdraft
A business overdraft is a straight forward loan that has interest and activity fees, its value is that it does not have an end date or repayment schedule. But once the limit has been reached it does not have any flexibilities post that and we have seen many businesses over the years cap out on overdrafts and then nowhere to go. That is when they look for options such as factoring to align the demands of cash flow to the actual liquidity of the business.
Factoring works and does so as it matches like for like. As the business grows so do the sales and the exposure to the factoring company is only ever a percentage of your factored sales at a point in time.
BCashflow Positive factoring allows you to leverage off an untapped asset within the business, the receivables ledger. A funding solution that allows you to release the cash flow that would otherwise be locked up in your unpaid invoices to cover the costs of your next round of new orders waiting to be fulfilled.
When operating successfully within the gross margins set, often a business will offer discounts to customers allowing them to speed up the cash flow cycle enabling them to purchase the stock or employ the staff to cover the next order or generically growing business. The cost is a manageable loss of gross margin to get the cash in. Factoring mimics that process by using a third party like BCashflow Positive to bring forward the sales timeline at a discount. It allows you to leverage off those future invoice payments, so that you can use the released funds to pay suppliers, cover the costs of production to deliver on new orders, and pay wages on time.
Why Factoring with BCashflow Positive?
With three decades of experience, BCashflow Positive has become a leading factoring company in Australia. We want to help small and medium businesses, even start-ups, to thrive and manage their cash flow needs. There are no quarterly audits or intrusive shadow software. We give you the freedom to run your business.
Since factoring is not a loan, industries that are new, growing, or facing cash flow gaps will find factoring to be an attractive option. If you’re an SME looking for a flexible cash flow solution, call 1300 937 292 and speak to one of our factoring experts to fast-track your application.
Why Traditional Factoring Is Safer Than Reverse FactoringMar 31 2020 in Invoice Factoring
Factoring has long been a popular financing option for companies who need to improve their cash flow. For 30 years, BCashflow Positive has been proudly helping clients get access to the money they’ve already earned.
Invoice factoring should not be confused with reverse factoring, which is also known as supply chain finance. In this scenario, the company uses a reverse factoring partner, which could be a bank or an alternative lender, to help pay suppliers’ invoices.
What Is Factoring?
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its accounts receivable to meet its present and immediate cash needs.
Factoring vs. Reverse Factoring
With factoring, the factoring company advances you with a percentage of your sales invoice upfront to help you improve cash flow. Instead of waiting up to 90 days for your clients to pay, you can release immediate cash from your invoices.
With reverse factoring, the bank or lender commits to pay your suppliers’ invoices at an accelerated rate in exchange for a discount. The process is still initiated by you (the customer) to help your suppliers finance their receivables.
Reverse factoring fees are often higher than traditional factoring, as a discount is applied for the customer while the bank/financier also charges their fees. So, although the supplier receives the full amount upfront, it is still less the agreed discount and funder fee.
The Australian Competition and Consumer Commission is looking more closely at reverse factoring, and Small Business Ombudsman Kate Carnell has initiated a formal review of reverse factoring. There is some concern that companies are not disclosing their reverse factoring practices to their shareholders. Thus, it makes those businesses appear to be doing better than they actually are. When Carillion, a British government contractor, collapsed in 2018, it did so under the weight of extreme debt—and it had been using undisclosed reverse factoring.
Given the uncertainty of the future of this practice and the confusion it can create on paper, traditional factoring is a much safer option to achieve what is basically the same result: improved cash flow.
Factoring has a long history dating back to ancient Rome. It is widely used by businesses around the world to improve cash flow and it is not currently under Government scrutiny. Factoring also has many other benefits which are explored further throughout this article.
How Can Businesses Use Factoring to Improve Their Cash Flow?
Maybe you’ve already experienced this: you’ve made dozens of sales, but you have no cash to show for it because all those clients are sitting on their invoices—and may take 30, 60, or even 90 days to pay them. In the meantime, what are you supposed to do about ATO obligations and your own outstanding invoices? How can you hire new employees or develop new products? There is no certainty as to when your clients will pay their invoices.
That’s where factoring comes in. You can have the money you’ve earned within hours of invoicing your clients. Then, that steady cash flow can keep your business growing.
How Does the BCashflow Positive Factoring Process Work?
The BCashflow Positive process is simple and fast, giving you access to your money in as little as 4 hours. You can get your invoices funded in 3 simple steps:
- Invoice your clients and send us a copy.
- BCashflow Positive will advance up to 90% of the invoice face value, less 1.8% for the first 30 days, in as little as 4 hours.
- We will credit you the remainder of the invoice when your client pays us, less any accrued fees.
The BCashflow Positive fee structure is straightforward and transparent. Our calculator makes it easy to determine the fees you’ll pay on each invoice you send us—so there are no surprises. Stay in control by choosing which invoices you want to factor. We also don’t require property security or quarterly audits.
Advantages Compared to Other Business Funding Solutions
With banks tightening their credit policies, businesses may find it harder and harder to acquire traditional business loans. The application process can also be onerous and time-consuming.
A line of credit or overdraft may also not be enough to service ongoing business expenses, depending on the limit. If your business borrowings are secured by property or your home, you are also at risk of losing everything if something goes wrong.
Factoring is a faster, more accessible funding solution for many businesses. The application process is simple and there are fewer restrictions than what you’ll find with most banks.
Factoring Your Invoices With BCashflow Positive
With BCashflow Positive you choose which invoices to factor. Additionally, since the money you receive is based on sales you’ve already made, there is more peace of mind.
With three decades of experience, BCashflow Positive has become the leading company in Australia, providing businesses with steady cash flow. We prioritise customer service and love helping fellow Australian businesses succeed. When you work with us, you’ll enjoy:
- A response to your application within 24-48 hours
- Advance up to 90% of the invoice value to you in as little as 4 hours
- Upfront pricing structure—no hidden fees
- No quarterly audits or property security
- Friendly, professional, and dedicated service throughout our relationship with you
Factor the invoices you want, when you want, and get that cash flowing through your business. Use it to pay taxes and suppliers or take your business to the next level.
Not sure if invoice factoring is the right choice for you? Contact us today to speak to a local cash flow expert. Small to medium businesses and even start-ups that turnover $100,000 to $3,000,000 a month can benefit from factoring. Whether you work in recruitment, mining, manufacturing, transport, or any other industry, we can help you determine if factoring is a suitable funding solution for your business’s cash flow needs
How to Manage Cash Flow ProblemsJul 01 2016 in Business Cash Flow
Did you know that poor cash flow is one of the main causes of business failure in Australia? According to ASIC reports on corporate insolvencies 2014-2015, the top 3 causes of business failure are, inadequate cash flow, poor strategic management, and trading losses. Industries with the most insolvency lodgements between 2014-2015 were, business and personal services, construction, and accommodation and food services.
Cash flow is the life line of any business
At BCashflow Positive we understand that cash flow is the lifeline of any business, like fuel to an engine, a consistent cash flow keeps your business going while helping to achieve growth.
How debtor finance works?
Our Debtor Finance facility can provide your business with constant cash flow by releasing the cash tied up in your unpaid invoices. Up to 80% of the invoice face value is advanced in as quick as 24 hours. The remaining 20% is credited to you as soon as your client pays. Click here to learn more about how it works.
Benefits of a predictable cash flow
With a more predictable cash flow you can get on top of your operating expenses, pay your staff on time, take on more business and most importantly grow.
Why BCashflow Positive?
At BCashflow Positive we also pride ourselves on providing personable debtor finance solutions to our clients. With a national footprint and offices in Sydney, Melbourne and Perth, you will be dealing with our friendly and experienced team. Click here to learn more about us.
Our simple and fast debtor finance service grows with your business without the need of property security. So the more sales you make, the more cash you can get.
So don’t wait 30, 60 or even 90 days to get paid. Call 1300 937 292 and convert your invoices into instant cash flow now.