All things invoice finance: unlocking the power of your receivables

Wherever your business is positioned on the supply chain, you’ve no doubt seen first-hand the pressure this has put on your working capital and cash flow management. Spikes and dips in demand create funding gaps, impact cash flow, and can make it difficult for businesses to meet their financial obligations on time. 

Invoice (or Debtor) finance may help manage these challenges. As a flexible financing solution that unlocks cash fast it can bridge funding gaps, keep cash flowing, and capture new opportunities. 

Let’s take a closer look at what invoice financing is and how it can power your business.

Invoice finance is a source of funding in which you can use the money owed by your customers as collateral for gaining early access to a meaningful portion of those funds from a third party financier. A flexible finance option, it can provide fast cash flow to your business and help you manage your working capital.

1. Make the deal – You sell something to another business (who becomes a debtor).
2. Raise the invoice – You send the invoice to your debtor, and when you’re ready to make a request for funds upload it to the Octet Platform.
3. Receive funds within 24 hours – Octet will provide you access to up to 85% of your unpaid invoices via a flexible facility, and let you draw down on what you need.
4. Your debtor pays – The payment goes into a nominated account that we manage.
5. You receive the balance – We pay you the remaining balance, minus our agreed fees.

For certain industries and business models, having an invoice finance facility in place can give you a huge advantage. Here are some examples where invoice finance can be a particularly great fit:

• Long customer payment terms – Long payment terms and payment cycles, with potentially long delays between selling a product or service and receiving the cash for it. 
• Seasonal sales cycles – Sales and cash peaking throughout the year, but costs remaining consistent regardless of the season. 
• Fast growing – Facing an increasingly strong demand, but lacking the cash flow needed to meet it. 
• Lack of physical assets to provide as security – Especially relevant for service based businesses, newer businesses, and those that are rapidly growing. 
• Reliance on balance sheet – Depending on the structure of your business, keeping healthy balance sheet metrics could be a key consideration. 
• Desire for early payment discounts – Hoping to negotiate early payment discounts with your suppliers, but lacking the cash needed to secure them (an invoice finance facility can provide the funds needed to help secure these deals). 

These examples can apply to businesses across a wide range of industries. The most common industries to benefit from invoice finance include:

• Wholesale
• Transport
• Labour hire
• Manufacturing
• Healthcare
• Pharmaceuticals
• Food & beverage

There are two different types of invoice finance available. You’ll need to consider both and see which is right for you. 

Disclosed invoice financing is when your debtor is aware of the involvement of the finance company (i.e. Octet). Instructions to pay the finance company are included in the invoice, and funds are paid to a nominated account. The finance company also has the right to chase late payments. 

The advantage of disclosed invoice financing is that it’s easier to secure. However, it can require careful relationship management with your customers as the finance company may also deal with them directly.

Confidential invoice financing is where your debtor is unaware their invoice has been sold. The finance company isn’t involved with any communication with the debtor, which continues to be handled by your business.

The advantage of confidential invoice financing is that you retain full control of the process and the relationship with your customer. However, to secure this type of financing you’ll need to meet a few more conditions as the risk to the finance company is generally higher.

Invoice finance is an increasingly popular source of funding, and with good reason. Here are some of the benefits:

If you have cash flow challenges, one of the biggest problems is finding cash fast when you need it. Traditional lenders such as banks can take weeks (or longer) to approve finance thanks to their strict documentation requirements. With invoice financing, once you’re approved, you can have access to the cash tied up in your invoices within 24 hours.

If you’re looking to traditional sources for funding (e.g. banks), you may need to offer property as security and to add a loan to your balance sheet. Depending on the stage your business is at, you may not have the assets available to do this. Even if you do, taking on a loan may not be the best move for your balance sheet.

Invoice financing is an attractive and flexible alternative. By using your receivables as collateral, you can quickly access valuable cash without having to offer property as security and keep your balance sheet intact.

What could you do if all your invoices were paid within 24 hours? Invest in new projects? Expand your operations?

With invoice finance, you can make this happen. By having an invoice finance facility in place, you’ll improve your cash flow and have cash available to explore the possibilities and power your business growth.

Growing receivables can be a concern for any business. Let them grow too high, and you risk experiencing the dreaded cash crunch. With an invoice finance facility however, you can turn this asset into readily available cash and keep your business on track for high growth.

There are a few different ways you can finance your business, and the best method depends on your business and the activity you’re looking to fund. Using an invoice financier helps you diversify your sources of finance and spread risk.

If you need to get paid before you can re-stock your products or supplies, invoice financing could be the perfect solution. With fast access to cash you’ll never have to wait again, helping you keep your customers happy and your revenue healthy.

A unique blend of invoice finance and trade finance, supply chain finance links buyers and suppliers to help free up your working capital. As a completely unsecured product, it’s only available to businesses with a strong profit and substantial turnover.

Intelligent businesses use finance to fuel their growth. If you want to unlock the cash in your receivables and power your growth, we can help. 

View our suite of working capital products to find the best solution for your business needs.