6.11.17 – The Most Underutilised Asset in Business
Most small businesses have ambitions to grow – whether to become a global mega-corporation or just to establish a more secure and comfortable future for their owners. In order to do this, their people and assets need to work harder, and they will also probably require funding.
What if we told you that there’s an asset currently sitting idle within most small Australian businesses, which could be working for them to bring in business finance at a very competitive price?
Using What You Have to Your Advantage
Successful small business owners – ie those who stay in business – are usually very good at making sure their physical assets work for them. They will not buy a machine to then let it stand idle; they won’t lease premises bigger than they need; and they try their level best to avoid employing lazy workers. However, there are two important ways in which a business can use its assets, and many small business owners fail to see the potential of their assets to secure business lending and improve cash flow.
All your assets have the potential to work for you when it comes to finance, whether you use them to secure a business loan, or for debtor finance such as invoice financing or factoring.
The Importance of Assets in Business Funding
Anything your business owns which is worth money or has the potential to earn money is an asset. As such, it can help you finance your business at a cheaper rate than an unsecured business loan, because the lender will have some security as a guarantee of recouping their debt.
Since the financial crisis, asset-based finance (ABF) has become even more important and desirable, both for businesses and for lenders. This is because regulators have clamped down on unsecured lending, making it more expensive and harder to come by.
But the Basel international banking rules agreed following the crisis in order to strengthen the financial system encourage lenders to use ABF, which is less risky and can better reflect a business’ true needs and ability to repay.
Your Invoices Are An Asset
In many ways, a business’ accounts receivable – ie its outstanding invoices – are the ideal asset on which to base funding. After all, they reflect the enterprises’ customer base and workflow, and are a very strong indicator of cashflow to come.
Various forms of cash flow financing – or debtor finance – have developed to reflect this happy coincidence of funding need, and proof of ability to repay. These include factoring, where the lender or factor takes control of a company’s accounts receivable and advances money on the whole lot; and flexible invoice discounting as offered by tim., where a business owner or finance chief can decide which invoices she or he wants to use to raise cash in advance.
Accounts Receivable Remain Astonishingly Idle
Despite the fact that low-cost financing – and sometimes even free financing – is readily available based on accounts receivable, many invoices in Australia today remain astonishingly idle. They do nothing but wait to be paid – and that often takes two or three months. These idle invoices are, quite literally, the most underutilised asset in business today.
Is it about time you put your idle invoices to work?