alternate sources of funding

Alternate sources of funding for growth

by Angus Jones

With tougher economic conditions and tighter lending criteria, Australian SME’s are increasingly looking to alternate sources of funding.

New data from funding solutions company OptiPay shows an increase in small businesses seeking invoice financing, which is commonly used by SMEs overseas as alternate sources of funding.

“With banks tightening up on how much and how easily they’ll lend money to SME’s, smart business owners are looking outside the box for solutions to grow,” says OptiPay CEO Angus Sedgwick.

“Invoice financing gives them an advance on the money owed from their business’ outstanding invoices – a revolving line of credit which they can unlock from their accounts receivable ledger,” he says.

Internal OptiPay data shows their customers are growing their sales revenue on average between 50-60% every year.

“What we see with our clients is a snowball effect. Unlocking that cash flow allows them to grow at a faster rate because they’re no longer having to wait 30 plus days for their invoices to be paid which allows them to utilise the cash from their sales revenue immediately within their business to drive growth.”

“The problem some businesses run into with a bank loan is that they’re growing so rapidly over a 6 month period that suddenly the approved loan isn’t enough and it can be virtually impossible to get that loan increased,” says Mr Sedgwick.

The demand for invoice financing has more than doubled since early 2018 with 16.3% of SME’s taking out a new invoice finance facility in the past 12 months compared to 7.6% three years ago.

“When a business is going through a rapid growth phase it needs cash as they might be taking on new contracts, new employees, upscaling machinery and possibly needing new premises so they’re spending money before they make any – and invoice financing can bridge that gap.”

“An invoice finance company will pay up to 90% of the verified outstanding invoice value, often within 24 hours. It effectively bridges the cash flow gap between a sale being made and cash for that sale actually being received.”

“By unlocking that cashflow, we’re seeing businesses on average grow their sales revenue by 50-60%.”

 “It’s a tough environment out there for SME’s at the moment and whilst banks are becoming more risk-adverse to lending, for us a growing business is the perfect client,” says Mr Sedgwick.

“Manufacturing and wholesale traders are the most common utilisers of our products, but any B2B business with strong sales should be considering invoice financing,” he adds.

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