Congratulations, you’re making big sales and sending out big invoices! Business is booming, and you couldn’t be happier– except that your customers are saying this:
“We will pay your invoice on the 20th of the month”
An understandable request– they need money in before they can send money out.
However, your employees can’t wait until the 20th of the month to get paid, and your suppliers want you to pay them within 7 days of when they send an invoice.
That 20th-of-the-month clause has caused a “cash gap,” a length of time between when you pay money for supplies and labour and when you receive money from your customers. Suddenly, your client’s liquidity problem has become your liquidity problem.
Say your business’ daily sales are $2,739 ($1m per year). If your profit margin is 25%, then your cost of daily sales is $2,054. So if you have a 30-day cash gap, all you need to do is make sure you have $61,643 in the bank at all times. This sum is called “working capital.”
So if you don’t have that amount of money on-hand, all you need to do is extend your business loan (or inject shareholder funds, or request an overdraft.) Then you can pay your accounts payable, yourself, and re-invest in the business. However, when extending your loan or overdraft you will be expected to resubmit a full application to your lender each time. This can take up to four weeks to process.
However, there might be an interest rate associated with acquiring more capital. There might be a minimum repayment you’ll need to make, or your line of credit might be secured against your house. In short, there’s a limit to how much you can expand your working capital with credit alone. And you don’t want to hit that limit, because it means that you won’t be able to take on new clients or new projects, because you don’t have the cash in the bank needed to start the job.
This is called “suffocating on your own success.”
You could restrict yourself to only doing business with customers that pay within seven days, but is it good business to turn away clients and risk losing potential profits?
But there’s a way where you can get paid for these invoices immediately, without increasing your overdraft, taking out a loan, or putting security on your house.
It’s called Invoice Financing, and here’s how it works.
Let’s say you run a company called Wholesale Coffee Beans. You sell a total of $20,000 of coffee beans every month to small cafes around Auckland. However, at the beginning of this month, the biggest cafe at the airport bought $5,000 of coffee beans from you and will pay your invoice on the 20th of the month.
After delivering the beans to the airport, you won’t have enough stock to supply your regular customers. You need to order more beans.
However, since you’re used to selling $20,000 worth of beans, you’re used to having $20,000 working capital, which is usually spent on your premises, staff, and the next month’s supply of beans. You don’t have enough working capital to buy more beans. You need to find an extra $5000 right now and more if they are ordering every month ongoing.
So you take your ledger of outstanding debtors to the Invoice Financing company. They advance you 80% of the total outstanding debtor monies owed to you that are 90 days or less old. Now you have plenty of capital to expand your sales effort and buy your stock to service your customers.
At the end of the month, the debtors pay their invoices to the invoice financing company. The invoice financing company then releases the remaining 20% of money (remember they only released 80% to start with) less their fees and any interest.
The biggest benefit to using Invoice Financing is that it removes the “cash gap” time lag. Although there are some small charges associated with sourcing this type of finance, what you are getting in return is speed. You can stay on top of your bank balance, invest in new technology, finance a reorganization, or start a new promotional campaign.
You also are saving yourself time- no more having to chase up late payments. However, you do still manage and control your debtors as normal but now you can automate the process rather than spend hours on the phone panicking.
You retain full control of your cash flow, sales ledger, and profits.
Invoice Financing Can Improve Vendor Relationships
Invoice Financing accommodates growing businesses because your funding grows with your sales. Additionally, it doesn’t negatively impact your credit score – in fact, it can even improve it! A good business credit score builds trust with customers and vendors alike.
With business Invoice Financing services, you won’t have to decline a large order because you’ll have the funds you need to keep up with the demand for your products or services. The consistency of funds rolling in ensures that you’re better prepared to pay vendors for services in a timely manner.
Ultimately, your vendors aren’t preoccupied with how you choose to finance your business operations. They care about getting paid quickly and consistently. Invoice Financing provides the flexibility and capital to make on-time payments, which keeps vendors happy and ready to take on the next project for you.
It’s easy to work with Geneva Capital: no matter what ledger system you’re using, you can access invoice financing from us whenever you need it.
With Geneva Capital, you do not have to change the way you invoice your customers. All you do is submit copies of your invoice to us. Depending on the type of facility you operate, we might verify some, all, or none of these invoices with your customers.
Even submission of invoices Geneva makes an easy process with the ability, with your permission, to automate the process of uploading data from your accounts package to you Invoice Finance facility, eliminating errors and saving time.
We also advance a larger percentage of the invoice versus our competitors: up to 90%. We also do not secure your loan against something such as property, because your invoices themselves are the security.
We can also work with you if you only have one or two debtors on your ledger and will work with you to minimise the risk and restriction on funding other Invoice financing companies place on their facilities.
In Disclosed Invoice Finance, you can fund against your entire debtor’s ledger: you submit to Geneva Capital all of your invoices for all of your customers. Your customers will be made aware that they are paying their invoices to us. Geneva Capital will make collection calls on your behalf and send monthly statements.
With this solution, you are getting a full accounts receivable service.
Unlike other companies, we can accommodate the SME business that may only trade with one or two major customers. We will not restrict the available funding just because you haven’t a spread of debtors. We are here to help fund your business however you choose to run it.
Geneva may offer this service disclosed, meaning Geneva will send statements and help collect the debt.
If you qualify, we can use a confidential facility – your customers will not be aware that they are paying us. You simply notify them of a change in bank account. You will be responsible for collection calls and sending out statements, and Geneva Capital will not interfere with your customer relationships. Most of our clients can qualify for this service and love using this product.
The difference between disclosed invoice financing and confidential invoice financing is who collects on the unpaid invoices. With the confidential product, you contain full control of collections. With the disclosed product, Geneva Capital takes over collections, calling debtors, chasing payments and issuing statements.
You are eligible for Invoice Finance if you meet the following criteria:
(Subject to the terms and conditions of the Facility Agreement. Lending criteria, establishment and purchasing fees apply.)
It doesn’t cost you anything to find out if you’re eligible, so get in touch now so that when the day comes that you need cash now, you can call on Geneva Capital to get your immediate cash.
Yes you can, and we won’t charge you extra for doing so.
No! No fixed term is required, we believe that if you are not completely happy with our service, then we have failed as your invoice financiers. We will require one month’s notice so we can get the affairs in order.
Geneva Capital offers the option of debtor protection. If you would like to discuss this option please get in contact.
All of our agreements have recourse for unpaid invoices back to you. If a debtor doesn’t pay within the recourse period, usually 90 days, then we automatically adjust your funding availability by that amount. As you do all the credit control on your sales ledger it is up to you to ensure that you keep control of your slow-paying customers.
Industries that regularly use Invoice Finance as financing source (but not limited to):
Potential reasons for accessing Invoice Finance services:
One or more circumstances might apply, and the list is by no means exhaustive
You need cash flow for everyday business expenses and payroll.
You cannot access traditional bank financing.
You need cash flow in addition to bank financing.
You are a growing business
You don’t wish to use your home as security, or you wish to release the family home from your current lender
The Bank has said “no not yet” to any borrowing request
Invoice Finance clients typically share one or more of the following characteristics:
Insufficient credit history
Bank credit denied or maxed out
Negative net worth
Highly leveraged company
Click here to get in touch with us. We’d love to learn more about your business, and help you decide if invoice financing is right for you!