In the current challenging business environment, New Zealand and Australian companies are increasingly turning to innovative financial solutions to manage cash flow and fuel growth. One such solution gaining traction among savvy business owners is invoice finance. The ability to utilise revenue a business has already earned means that invoice finance is emerging as a strategic tool for strong, established businesses looking to optimise their financial operations.

Market Overview

Recent economic challenges, including supply chain disruptions and inflationary pressures, have heightened the need for flexible financing options. "We're seeing a significant shift towards more agile financial solutions," says Shane Laurence, Head of Growth with FundTap, a leading invoice finance platform for SME. "Businesses are looking for ways to unlock capital quickly without the constraints of traditional lending."

Understanding Invoice Finance

Invoice finance allows businesses to access capital tied up in unpaid invoices. Instead of waiting 30, 60, or even 90 days for payment, companies can receive a significant portion of the invoice value upfront from a finance provider.

The process is surprisingly straightforward. "With modern providers, businesses can often get set up in minutes and see funds in their account within hours," explains Shane. "It's a far cry from the weeks-long process associated with traditional bank loans."

Lending limits typically range from a few thousand dollars to millions, depending on the business's size and invoice values. The key attraction for many is the speed and simplicity of the process, often requiring little more than a connection to the company's accounting software.

Strategic Applications

Invoice finance is proving valuable across various scenarios:

• Seasonal Sprints: Imagine you're a swimwear designer. Your busiest months are just before summer, but you need to pay for materials months in advance. Invoice finance can bridge that gap.
• Growth Spurts: You've just landed a massive contract that'll double your business overnight. However, now you need to hire staff and buy equipment before you see a cent from the new work. Invoice finance allows you to more closely match the flow of cash for your expenses and income.
• Big Fish, Small Pond: You're a small IT firm that's snagged a government contract. The work is steady, but they pay on 90-day terms. Invoice finance keeps your cash flow smooth while you play with the big boys.
• Unexpected Opportunities: A competitor is selling their client list, but you need to act fast. Invoice finance can give you the ability to take advantage of growth opportunities your business cashflow could not support.

Industry Reach

While traditionally associated with sectors like construction, manufacturing, and wholesale, invoice finance is finding applications in less obvious areas. "We're seeing uptake in professional services, creative industries, and even healthcare," notes Shane. "Essentially, any business that invoices clients can benefit from this tool." Recent applications of private/non-disclosed facilities have allowed importers/exporters and those providing services directly to the public to take advantage of the benefits of invoice finance.

Cost Considerations

A common misconception is that invoice finance is prohibitively expensive. However, a cost-benefit analysis often reveals a different story. When compared to traditional bank loans or overdrafts, the flexibility of pay-per-use invoice finance can be more economical, especially when considering opportunity costs.

"Consider a scenario where a $50,000 invoice finance transaction at 3% for 30 days costs $1,500," illustrates Shane. "If this allows a business to take on a $100,000 contract it would otherwise have to decline, the return on investment becomes clear."

Streamlined Repeat Use

For businesses that regularly use invoice finance, the process becomes even more efficient. Repeat users often enjoy faster approvals and potentially better terms. The on-demand nature of modern invoice finance platforms means businesses can access funds as needed without ongoing commitments.

Conclusion

As the business landscape continues to evolve, so too must financial strategies. Invoice finance represents a shift away from one-size-fits-all financial products towards more flexible, tailored solutions. For strong businesses looking to optimise cash flow and seize growth opportunities, invoice finance is proving to be not just a viable option, but often a preferable one.

By providing rapid access to capital without the constraints of traditional lending, invoice finance is enabling businesses to navigate challenges and capitalise on opportunities with unprecedented agility. As awareness grows, it's likely that more New Zealand and Australian businesses will incorporate this tool into their financial strategies, viewing it not as a last resort, but as a first-choice option for smart cash flow management.