Is a bank overdraft right for you?

by admin on November 2, 2011

While many businesses prefer a bank overdraft there are many disadvantages.

  • Many think it is set and forget, however if the business is growing it may have to be rearranged regularly, incurring new set up fees. Perhaps during the term of the facility.
  • It is “at call” and they can be called in by the lender at any time.
  • You face administration fees if you exceed the agreed limit.
  • Overdrafts are normally secured against business assets – the lender can take control of these if you don’t repay the overdraft.
  • You can only get an overdraft from the bank where you maintain your current account. In order to get an overdraft elsewhere you need to transfer your business bank account.
  • The interest rate applied is nearly always variable, making it difficult to accurately calculate your borrowing costs.

Banks typically set and limit business overdraft levels based on a company’s trading history, without recognising the true value of a company’s liquid assets, e.g. debtors. This means that an overdraft is a backward looking, rigid way of financing growth, with the worrying disadvantage that it could be withdrawn at anytime, especially in today’s business climate. In direct contrast, an alternative business funding option is revolving debtor finance such as an invoice discounting facility that grows with a company’s sales day by day and is only constrained by the level of invoiced business transactions.

So is your bank overdraft restricting your company growth? An invoice finance solution that moves forward with your business could be the answer.

Debtor finance acknowledges what is for many ‘small medium enterprises’ their primary asset, i.e. the outstanding value of any trade sales offered on credit terms. When a company grows, therefore the value of any outstanding invoices increase, then a flexible cash flow solution such as invoice discounting automatically expands with those debts thereby filling any potential funding gap for supplies, raw materials etc.

Invoice finance is therefore an asset based facility, which can accommodate business expansion, typically giving fast access to cash up to 80% of your outstanding trade debts. Cash raised in this way can be used to reduce or complement an overdraft facility, but more importantly maintain cash flow or working capital and give the company the opportunity to achieve supplier discounts through early payment.

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Australian Small Businesses Still Face Uncertain Future

by admin on September 8, 2011

While the government is talking up our economy, in relation to global economic conditions, the reality is that the SME market is experiencing some of the most difficult conditions on record.

However, the uncertainty surrounding the looming carbon tax and our political scene has sent business confidence plummeting. The downturn in the retail sector is well documented and manufacturing is shrinking at the fastest pace in two years.

Nearly 3000 businesses ceased trading in the June quarter and some economic analysts are predicting as many as 10,000 small businesses may fold as consumers and businesses stop spending.

Cash flow, or the lack of it, is cited as a major reason for SME failure. As the economy tightens, working capital reserves are being eroded. Even when businesses do proceed, debtors are delaying payment of invoices, sometimes up to 120 days or more.

According to Alan Kaye, Managing Director of Cash Resoures Australia, one of Australia’s leading debtor finance companies, “Maintaining a healthy cash flow has to be the highest priority for small business in these economic times”.

“Adequate levels of working capital are vital to meeting day to day financial commitments and protecting the long term viability of a business”, he said.

One way to ensure a strong cash flow is Invoice Discounting, where you unlock the equity in your debtors to give you the working capital you require to ride out tight economic times.

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Accountants see a vital role for debtor finance for funding working capital

September 8, 2011

More and more Accountants are recognising the value of Debtor Finance to fund working capital. For years viewed as a facility of the last resort, today more and more Accountants are comfortable recommending Debtor Finance to clients. Accountants generally agree that one of the biggest challenges facing small business today is a shortage of working [...]

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Invoice Discounting Bridges the Gap For Temporary Employment Agencies

June 29, 2011

Temporary employment agencies play a vital role in the employment scene in Australia. These agencies help companies in a wide variety of industries to avoid interruptions in business operations and production by providing staff often on very short notice. Running a temporary employment agency might sound simple; find clients that are willing to accept your [...]

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