Oils Ain’t Oils Ad – A Reminder of Cash Flow Finance Variations

For those of us who’ve been around long enough to remember the ‘Oils Ain’t Oils’ advertisement, it is an apt reminder that not all business cash flow finance is the same beast. In fact far from it.

Far too many businesses sign up to long term loan contracts only to learn that the devil in the detail is excessive rates of interest, hidden fees and lock in covenants.

Businesses without a clear cash flow management strategy can find themselves in the wrong place at the right time when they settle for the first provider that says “jump in!” According to one study, roughly 90% of companies do not have a proper view into their cash flow and an additional 1 in 3 are dealing with invoices that are at least 90 days past due.

Download tim’s SME cash flow crisis report here.

Taking the step to bring on a B2B funder, however, is not a decision that should be made lightly. As is the case with all decisions when the stakes are this high, it requires you to keep a few key things in mind.

Establish a Forward Plan

In advance of your cash flow needs, establish a facility without any lock in covenants, get your debtors approved, implement a credit policy, and look at credit loss protection and recovery strategies.

tim can provide this free and valuable service, and as they saying goes “forewarned is forearmed”.

The Amount of Funding

Perhaps the most important thing to know before you begin the process of bringing on a funder is exactly how much money you’re going to need in the first place. You should always take steps to properly assess how much your invoices are worth, which will put you in a better position to find the invoice financing service that can best cater to your own unique needs.

Loans vs Cash Flow Funding

A monkey in a suit is a monkey no less.

So, no matter how a loan for business is dressed up and presented, it will always remain a loan, requiring regular payments and personal guarantees. Very little flexibility exists with loans.

Contrary to loans, invoice cash flow discounting provides absolute flexibility, is more cost effective, and has (depending on the provider) no lock in covenants or property security. It is simple to establish a facility and you only pay a discount rate when you use the facility. And, critical to keeping a steady cash flow, there are no regular payments required i.e. you only pay the fee when the invoice is paid and out to 120 days!

Loans require regular repayments and in the small business space this can mean daily and weekly deductions from your company account, potentially exacerbating the cash flow problem for your business.

Can you immediately, if required, increase your credit limit? Remember business is fluid and a loan sitting on your balance sheet may restrict your ability to raise further funding.

Transparency Is King

B2B funders are in the business to make money, the same as you are — this doesn’t mean you should let yourself get taken advantage of, however. You need to work hard to find an invoice financing service that offers terms that are suitable for your needs. Think long and hard about contract terms, any hidden fees, and the overall level of transparency that they can guarantee.

Be on the lookout for hidden fees. If a company offers a low contract rate, it may be a sign that you’ll be dealing with fees you won’t find out about until you’re locked in. Above all else, do not get locked into a long-term contract if it doesn’t make sense for what you’re trying to accomplish.

With transparency, favourable contract terms, and advanced rates, you put yourself in the best possible position to secure the important funds you need when you need them the most.

If you need to establish a forward plan or want to find out more about invoice financing, contact tim today.