- 1 How To Use Debt financing in a cash crisis 2020
How To Use Debt financing in a cash crisis 2020
As the owner of a small company, you are likely to have encountered more cash flow problems. Although you can isolate yourself right now, you are not alone. About 50% of small businesses have negative cash flows at some point each month. As accountants in Perth, we are often called upon to solve cash flow problems and help small businesses find sustainable long-term solutions to their business expenses.
This, however, raises the question of how small business owners are able to cover their overheads, maintain their stocks and expand their businesses without accumulating more debt. Our specialist accountants in Perth have a solution to enable growth without more debt, thanks to debt financing.
What is debt financing? debt financing Jobs, Scope 2020
Debt financing is the process of financing your business by using the general accounts of your accounts received as collateral. Debt financing can include a multitude of options, but the two most common forms are invoice financing and factoring. Both of these methods help to provide capital without increasing debt, but there are some important differences that must be taken into account when choosing the right finance option for your business.
What is Funding Invoices – Advantages Of Funding Invoices
Many customers may have outstanding invoices or the time between customer invoices may be too long, leaving you in a difficult situation. Billing companies provide cash advances based on the sum of unpaid bills. They will pay between 70 and 90% of the amount due, in less than 24 hours. When the customer pays the bill, the remaining percentage of the invoice is received, minus the commissions of the financial companies.
What Is Billing invoice- Advantages Of Billing Invoice in 2020
Similar to invoice financing, invoice factoring will provide you with the initial percentage of the invoice. The difference is that the finance company will interact directly with your customers and be responsible for paying the bill. Depending on whether you choose a service with or without recourse, you can be held responsible for the risk.
What Is Debt Financing – What are the advantages of debt financing 2020
There is a long list of advantages when debtor financing is opted for injecting cash from traditional bank loans, thanks to the long and obsolete method of applying for loans from the major banks. Some advantages are:
Accelerated access to finance, sometimes on the same day of application. This is much more useful for emergencies than conventional bank loans, which could take months to process.
Eligibility conditions are less scrupulous than loans and bank overdrafts. This makes it more accessible to low-income people and businesses that do not have the best credit ratings.
Debt financing offers an interest-free income stream and does not involve safe assets. This makes it relatively risk-free compared to other financing options.
Which is the best for you?
Both solutions greatly help particular companies. Whether your business is seasonal or your customers have extended payment terms, a freelancer or a large client company, bill-to-bill financing can help you breathe to solve cash flow problems and reduce financial stress.
If you want to manage invoice payments yourself, financing the invoices would be the best solution. If, however, you don’t want to waste time tracking down outstanding invoices, you may be able to outsource them to third parties. In this case, factoring would be the best choice.
It all depends on the needs of your business and the situation regarding the best option for you. If you need additional help to determine the best course of action to reduce your cash flow, it is highly recommended that you speak with a professional account or sales representative.