Finance is a big industry that is dominated by huge banks. In Australia, the main player is National Australia Bank (NAB). Despite being the biggest, however, they aren’t necessarily the best choice for small or medium sized businesses that need invoice financing services.
Quick takeaways if you’re in a hurry:
- Invoice financing is a vital service to many small and medium sized businesses, but it’s dominated by huge banks, who are often not the best choice for specifically those SME’s.
- Big banks often have contract requirements that can be seriously restrictive to their clients’ financial autonomy
- Fifo Capital is much more flexible, and works hard to ensure that invoice financing works for you on your own terms.
Read on: Why choose Fifo Capital over a bank for invoice finance?
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Invoice financing is a lifeline
For small businesses, invoice financing provides an invaluable support mechanism. Minor cash flow interruptions would sink small businesses who don’t have short-term financing options, and invoice factoring is one way for small businesses to give themselves an advance on outstanding invoices when they need to quickly cover a cost.
The total industry is valued at approximately $63 billion, and it’s dominated by big banks like St George, Westpac, Bank of Queensland and a variety of smaller independent factoring companies like Fifo Capital. Big banks, like other big businesses, tend to adopt more rigid and foolproof rules and procedures as they grow, and that can really get in the way of your business.
Big banks offer tough terms
If a client went to NAB, or any other large bank, to get invoice financing, their contract would have some very problematic requirements, like:
- The client has to sell all their invoices to NAB, so it’s an all or nothing situation.
- The contract has to exist for a minimum of one year, sometimes 2 years.
- No one debtor can exceed 20% of the client’s business during the tenure of the client agreement.
These points drive a lot of business to our doors at Fifo Capital. Not all companies want to sell all of their invoices, and they certainly don’t need to. Invoice financing is a way to get an invoice paid early, before it would usually be due, so that you can get the liquidity you need when you need it. Selling all of your invoices is both unnecessary and expensive.
Also, being locked into an all-or-nothing 1 or 2 year contract doesn’t make sense for businesses in a fast-moving 21st century economy based on choice and open competition. Some businesses only need to use the service once or twice until they can stabilise their cash flow, while others might rely on it only seasonally.
Worst of all, restricting the debt that can be handled from each debtor to less than 20% simply won’t work for a huge number of small businesses. Many only have a handful of clients to begin with, meaning that a lot of the companies that need invoice financing the most wouldn’t be able to use it.
Bank facilities simply can’t meet the needs of a lot of SME businesses. Banks insist on minimum terms, which make it hard for clients to leave at the end of their term, because they are tied into that cycle. Once you’re in the door with the bank it is pretty much impossible to pull yourself out of it. At Fifo, on the other hand, we don’t believe in restricting your ability to do business your way.
How Fifo Capital can help
At Fifo Capital, we come at this issue from a completely different angle. Fundamentally, our approach is designed to give clients better control over their own finances, so they can go about the business of running their companies. Clients can choose to finance just one invoice with us, or many. If we accept and choose to finance an invoice, the liability of the client ceases as soon as the invoice is paid.
That means no long-term contracts, and with that, no nonsensical restrictions. That makes our product a lot more flexible and a lot more user friendly.
Great! What’s the catch though?
Since we operate in the short-term, we charge a larger premium for our service than, say, NAB. However, since we don’t require long contracts it’ll still be much cheaper to use our facility to address temporary cash flow situations than it would be to sell all of your invoices to a bank for years on end.
At Fifo Capital, you always know what you’re getting yourself into, and what it’s going to cost. We ensure that you can get the cash you need quickly with no hassle, and no hidden strings, contracts, or fees. Our success is built on advancing you and your business’ success, so give us a call to chat with one of our business finance experts about invoice financing.