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Cashflow finance
Cashflow is like the current of a great river. Your business has real power if you have strong cashflow. However, there are many factors which can divert IN and OUT cash flows and weaken your business. Cashflow finance is a set of financing options that can -
- preserve valuable business capital through leasing options such as renting and hire purchase to avoid large cash outlays for equipment, vehicles, stock purchases, etc (cash outflows)
- provide cash advances on balance sheet items such as invoiced customer sales (cash inflows).
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 Manage your CASH INFLOWS with debtor finance
When a business is growing your accounts receivable rise (money owed to you). That’s great but it can mean your business inputs also rise (trade supplier debt). That can put pressure on your cashflow because payments received may not neatly coincide with accounts payable. At the end of the month when bills have to be paid there can be an uncomfortable cash deficit. Many businesses can manage this by extending their overdraft, delaying payment to suppliers or extending their customer service times or delivery dates. However, there is not a sustainable strategy. Cashflow finance can help. It allows a business to receive a substantial advance on their invoices injecting valuable cashflow to continue their operations (wages, materials, services, etc)
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 Manage your CASH OUTFLOWS with flexible leasing options
Would new or upgraded business equipment make an improvement to your business? Then consider these cashflow friendly alternatives to outright purchase for -
- Motor vehicles
- Office equipment
- Stock/Inventory
- Industrial equipment
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- POS systems
- Medical equipment
- Office or shop fitouts
- Other asset types - please inquire
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When is debtor finance useful?
The term ‘debtor finance’ is a category of credit lending where you either sell your sales invoices or use your sales invoices as security in exchange for immediate cash. There are two types of debtor finance.
- Factoring and
- Invoice discounting
- manufacturers or wholesalers that need to cover their current production costs - raw materials, wages, stock etc. but are unlikely to be paid in the near future for their output
- businesses that regularly exceed their overdraft limit
- businesses that are unable to meet large orders or seasonal peaks
- businesses that have fully borrowed against fixed assets
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What are your financing options - Rent, lease or purchase?
There’s no quick answer. It depends on the type of equipment, whether it is new or second hand, whether the equipment can be sold on at the end of the finance term (ie. does it have a commercial value that can be realised easily?), the likely tax treatment and benefits, etc. If you are not sure, talk to your accountant or tax agent.
When considering purchasing equipment, vehicles, etc., consider these cashflow friendly options that can be tailored to match your cashflow needs. Make an enquiry or contact us and tell us your story.
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Factoring, how it works …
The factor (invoice purchaser) buys the invoices that you (the client) raise on normal credit terms - eg: 14, 30, 60 or 90 days. The factor will then remit, normally within 48 hours, between 60 and 90% (depending on the agreement you have) of the GST inclusive value of those invoices. This is normally done by simple bank transfer giving you immediate access to working capital to help you finance your business. This payment is normally referred to as a "prepayment", "drawdown" or "initial payment".
As part of the factoring service, the factor will administer your sales ledger, issuing statements and following up outstanding payments with phone calls and letters. Most good factors will allow you some input and flexibility on how this is done, ensuring goodwill is maintained with your customers, whilst still collecting the money in an efficient manner. When your customer pays the factor, the balance of the money (the difference between the prepayment and the full value of the invoice) is passed back to you.
Invoice discounting, how it works ...
Invoice discounting is where you sell your invoices on a continuing basis for immediate cash. Unlike factoring though, you maintain control over your invoicing, trading terms and conditions and credit management. It is completely confidential. Your customers will be unaware that you are invoice discounting. Customer payments are forwarded to your invoice purchaser. Assuming an 80% drawdown, 20% less fees will be refunded to you on a monthly basis, based on current collections. Invoice discounting charges comprise an interest charge on the amount borrowed and is normally the bank base rate plus 3% or 4% together with a discounting charge typically 0.5%.
For a debt to be factored, it must be a trade debt within Australia, not a personal debt and the invoice must be unconditional.
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Renting equipment
This has the greatest benefit where equipment has relatively short life cycles, high depreciation with low residual values (eg. computers) or are big ticket items which would normally be prohibitively expensive. The total repayment amount is 100% tax deductible as an expense.
Finance lease
A finance lease is a effective solution for new equipment and vehicle purchases. The lender purchases the item you require and then leases it back to you. You have full use of the vehicle or equipment and repayments can be adjusted to suit your cashflow. This is done by adjusting the term (1 to 7 years) and/or the balloon payment at the end of the lease (0% to 40%). At the end of the lease period you can either hand the equipment back to the leasing company to be sold at auction or pay the balloon amount and keep the equipment. Be aware that if the auction price achieved is less than the agreed balloon amount - you have to make up the difference. Equipment purchased in the last 6 months can often be leased back as well.
Chattel mortgage
Similar to a finance lease
Hire purchase
Most people would be familiar with hire purchase. The purchase price and the total interest charged are added together and the total divided the total months of the credit term. You can claim depreciation on the equipment and the interest component of the repayment amount is tax deductible. The equipment must be used to produce assessable income or the expense is necessarily incurred in carrying on a business. Speak to your accountant or tax agent about depreciation rates and deductible tax benefits.
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Debt management (including debt collection)
Bad debt or tardy account payers can cause an uncomfortable hiatus for any business. Its has a domino affect because money has to flow freely in business and the economy for enterprise to flourish. There are even people who have made it a practice not to pay their bills because they believe and had success in getting away with it! Don’t let this happen to you. If being reasonable with your customer hasn’t been successful then your tools of last resort are engaging a debt collection agency or legal action. Both can be effective in getting paid.
If the debt collection agency is unable to recover the debt - your options are to write off the debt or proceed with legal action.
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Rent
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Lease
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Purchase
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 Auto finance calculator
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Operating Lease
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Finance Lease
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Hire Purchase
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Term
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12 to 60 months
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12 to 60 months
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12 to 60 months
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Lo Doc facility
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No
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Yes
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Yes
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Are repayments fixed?
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Yes
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Yes
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Yes
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Are repayments tax deductible?
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Yes
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Yes
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Only the Interest Component
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Do I own the equipment after I make my last repayment?
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No
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No
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Yes
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Can I claim depreciation on the equipment? #
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No
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No
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Yes
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Is GST payable on the lease payment?
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Yes
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Yes
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N/A
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Will there be a residual (lump sum payment) at the end of term? *
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No
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Most likely
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Optional
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* Can be tailored to match your cashflow needs. The higher the residual - the lower the repayments.
# Amount is based on Australian Tax Office guidelines.
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