Press Releases
Factoring helps sustain small business cashflow during seasonal peaks
Factoring is growing as a preferred method for Australian small-medium businesses to finance their day-to-day operations.
It is a unique financing arrangement where by businesses can convert unpaid invoices into instant cashflow.
Factoring is a smart option for any B2B business with annual credit sales in excess of $100,000 and who are exposed to cyclical market movements or heavily reliant on fast debtor payments to sustain business development.
Most often, these businesses fall under the following categories:
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Wholesalers – importers and distributors, local buyer/sellers
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Merchandise manufacturers
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Printers
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Publishers
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IT
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Labour Hire and Temp Recruitment
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Textiles – fashion and clothing manufacturers
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Courier companies
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Beverage and confectionary
(The flexibility and services of Bibby Financial Services can extend to any industry.)
A factoring agent has two roles:
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To provide a flexible source of finance by allowing businesses to unlock the funds tied up in unpaid invoices, and
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To collect and administer the debt on the businesses behalf.
The major benefit for a business using factoring is an immediate injection of cashflow – the lifeblood for any maturing business.
How Bibby factoring works
Within 24 hours of credit approval, Bibby can inject cash into the business valued up to 90% of its unpaid invoices.
Cash is available from a draw-down account facility managed by Bibby. A cost effective interest rate is applied to any funds used.
When invoices become due, a Bibby Credit Officer will follow up payment.
As payments are received, the 10% or so balance is paid to the SME’s account, less Bibby’s service fee.
SMEs can access their account details anytime via the internet to keep track of payments received and the amount of funding available.
Why more businesses are choosing factoring
Factoring and discounting grew $4.9 billion in the quarter to March 2003, an increase of 34 per cent for the same quarter in 2002. (The Institute for Factors and Discounters Australia and New Zealand).
This growth is driven by a growing awareness among Australian SMEs of how factoring can benefit their business. Such benefits include:
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Reliable cash flow
In times when market uncertainty prevails, SMEs are particularly exposed to fluctuations in demand and the risk of debtor default. Meanwhile factoring helps SMEs accommodate fixed overheads such as rent, staff and tax by injecting a volume of cash into the business based on the aggregated value of its outstanding invoices.
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Confidence in decision making
A dry cash flow curtails the courage and conviction necessary for strategic development activities such as future planning, securing competitive trade terms and pitching for new business opportunities. A company held hostage to its cashflow cannot expand and succeed.
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Autonomy and flexibility over rigid bank terms
Banks and financial institutions offer a myriad of cashflow solutions that secure debt on the value of the SME proprietor’s assets, though these arrangements are rigid and require long-term and inflexible commitment from SME operators. Factoring on the other hand enables SMEs to vary funding arrangements in line with business performance and growth.
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Professional debt management
Factoring offers SMEs the added benefit of debt collection and administration, in some cases eliminating the expense of employing a full time or part time account clerk. Representing the SME is an efficient and diligent non-bank financier who understands the SME market and can objectively manage debtors.
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Time management
Outsourcing debt management not only frees up time expense, but creates time for business operators to focus more on operations and development opportunities.
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Bottom line protection
Often SME operators offer generous settlement discounts that reward creditors if payment is received within the specified trade terms. This can result in thousands of dollars every year that is effectively absorbed by the SME’s profit and loss statement.
