Monthly Archives: June 2018

Invoice Finance Melbourne: Definition, Perks and Disadvantages

Owning a small to medium sized business and worried about the working capital of your company? It is true that contacting all your customers who have not paid their invoices causes a lot of stress. What can you do to improve this situation? Invoice financing is the solution! Now you are probably wondering: “What exactly does invoice finance mean?

Invoice Finance Definition

Invoice Finance is a form of alternative financing that is often used by small and medium-sized enterprises (SMEs) that are looking for a flexible and user-friendly way for funding. In this blog, we explain what exactly Invoice financing means, why this form of funding is particularly beneficial for SME entrepreneurs and whether Invoice Financing is suitable for your company.

Here are five reasons to opt for invoice financing

Fast cash available

Have you applied for bank loans and are you frustrated about the time that this entire process takes? Here invoice factoring comes to your rescue. With invoice finance, in most cases, you receive the amount of money on the same day that you submit the invoice. Is not that great? In this way, you prevent the risk that customers will affect your cash flow by paying too late.

Low factoring costs

Over the years, the prices for using invoice have dropped dramatically. Generally, factoring costs vary between 1% and 4.0% of the trade volume. Of course, the rates vary per industry.

Sustained growth of your business

If you want to develop your small business, you need stable cash flow. Here invoice finance comes into action. With invoice factoring, you focus more on recruiting new customers than on wasting time on your debtors. As a business owner you pay your suppliers, and at the same time, you avoid problems in the distribution chain. You can also provide credit lines to loyal customers who need credit facilities. All this together helps you to stay ahead of your competitors, who have financing problems and thus grow your business.

Focus on your core activities

Can you not concentrate on your core activities because you are worried about your financial problems? Switch to invoice financing. With this, you can always pay off your debts on time. It provides a reassuring feeling and ensures that you can entirely focus on the growth of your core activities and your customer service. And the best part is that you do not have to worry about the cash flow.

Receive money without incurring new debt.

When starting a small business, debt can be the best way at that moment. However, this can be risky when your company is unique. If you can not deliver the money on time, you will face legal problems. You want to avoid that, right? What can you do to prevent this type of situation? Choose invoice finance. You do not have to opt for an expensive loan because you receive the much-needed capital for your business from the factoring companies.

Benefits of invoice finance

  1. Allows you to increase turnover/sales
  2. Offers the possibility of extending payment terms
  3. Allows you to maintain excellent relationships with your contractors and positively affects the image of your company
  4. Eliminates the risk, guaranteeing the recovery of receivables for invoices
  5. offers the possibility to reduce administrative costs.

Disadvantages

The main disadvantage of invoice finance is that you also have to pay an invoice fee, regardless of interest. It is either a fixed amount per invoice (for example 10 euros) or a fixed price (for example 20,000 euros per year) or a percentage of turnover (often between 0.1 and 1%). It can also be a combination of these. With Australian Style invoice (sales of invoices) you pay no interest, but only a percentage of the turnover (ranging from about 1 to 4%). Incidentally, the costs for invoice have fallen sharply in recent decades. The expectations show that this trend will continue.

Another possible disadvantage that you can experience is the ‘action’ that comes with it. Depending on which form of invoice finance you choose, a factoring company may require you to include a pledge clause, that your stocks are audited, and that pledge lists are sent. Practice shows that most companies get used to it (after 1 or 2 months). Customer satisfaction with factoring companies is generally quite high.

The range of alternative forms of financing has increased considerably in recent years in Australia.

1. Peer-to-peer (P2P): A well-known example of this is crowdfunding, where a large group, often individual investors, invest, lend or donate money via a platform. In 2014, three billion euros were spent in Europe via P2P (FTM, 2015), which according to PWC will increase to € 150 billion around 2020 (Peer pressure, PWC, 2015). Benefits of a crowdfunding campaign: a successful attack can provide a lot of exposure, it offers direct access to capital from a variety of investors and is reasonably comfortable to start.

2. A credit union is a non-profit bank for a specific region, sector or professional group and in fact functions as a cooperative. Entrepreneurs who are members of a credit union make money available, which is then granted by the board to entrepreneurs within the union.

3. Online lenders such as Spotcap are technologically driven companies that can quickly decide whether a company is eligible for a loan through the use of data and algorithms, in combination with knowledge. Unlike banks, where it takes an average of three weeks to get a definite answer, Spotcap can decide within 24 hours.

The following companies and businesses are particularly suitable for invoice finance:

  • Wholesalers/importers
  • Secondment / employment agencies
  • Printing/graphic industry
  • Clothing companies/fashion
  • Transport

Equipment Finance Melbourne: Definition, Perks and Disadvantages

Equipment Finance Overview

Most businesses need equipment in order to operate or even to exist. The type of business and the kind of equipment you need are the key factors that determine whether to buy or seek financing. Equipment financing helps all types and sizes of Australian businesses obtain the machinery, vehicles, or other equipment they need to conduct their operations.

Equipment finance helps businesses that are finding it hard to access other forms of financing since the equipment acts as security and may be taken away if the business is unable to pay. As such, lenders do not exceed the value of the equipment when offering businesses equipment finance. Also, the length of the loan does not exceed the economic useful life of the equipment.

Equipment finance helps all types of businesses, but more so small businesses and startups that may not be able to get financing through the traditional funding methods. Equipment can be financed in virtually every sector of industry such as manufacturing and mining equipment, vessels and containers, IT equipment and software, agricultural equipment, construction equipment, office equipment, among others.

Benefits of Equipment Financing

1. No down payment

Unlike most traditional forms of financing, equipment financing makes it possible for businesses to get 100 percent financing without any down payment. This is key especially for firms who don’t have cash but need equipment to function.

2. Helps Businesses Maintain Cash

Since you are not required to pay anything when getting the equipment finance, businesses are able to hold on to their cash, or working capital, which can be used to fund other areas of the business such as paying for overhead expenses, expansion, marketing, or improvements.

3. Hedge against Inflation

Equipment financing provides a hedge against inflation because instead of paying the full cost up front in today’s dollars, the interval payments delay your outlay of funds. In addition, you get to pay for the equipment at the price and rates that were locked in at the date of closing. The financing company absorbs any devaluation of the payments as a result of inflation and other financial risks.

4. Keep up with the latest technology

Technology is ever evolving. What seemed amazing yesterday is replaced with something better today, which is then replaced with something even better the next day. To stay ahead of the competition, businesses need to invest in the latest technology which may not be possible without financing. Equipment finance provides a way for businesses to get the latest equipment as soon as it is available.

5. Leverage equipment expertise

Since you don’t really own the equipment until you have fully paid for it, the equipment financier may provide asset management services to help track the status of the equipment. They may also provide services like installation, maintenance, and de-installation of the equipment.

6. Disposal

In some cases, the equipment financing company may help businesses dispose of their equipment making it faster, easier, and less likely to attract penalties as a result of improper disposal.

Disadvantages of Equipment Finance

1. Restricted Use

When you buy equipment using equipment financing, you don’t own the equipment until you have paid fully for it, which can take years. You have to get into an equipment financing agreement which may restrict utilisation of the equipment. You are also not allowed to make any modifications without seeking permission from the financier.

2. Higher Cost

The cost of equipment financing is much higher than the cost of buying the equipment in cash.

3. Equipment can be taken away

Failure to pay as per the agreed terms under the contract may result in repossession of the assets by the financier.

Interest and charges

On average, equipment finance rates in Australia 5-6% depending on the type of equipment and the time period.

Alternative forms of financing

There are other options for businesses looking for ways to get financing to buy equipment. Some of them include:

1. Bank Debt – A traditional bank loan impacts your available credit and may dip into your cash reserves. Also, most banks do not offer 100% financing.

2. Chattel Mortgage – this provides businesses with immediate ownership of the financed equipment.

3. Using Angel Investors – investors bring in their money in exchange for shares in the business or a slice of the company’s profits.

The following are some of the companies offering equipment financing in Australia:

  • Heavy Vehicle Finance
  • Equipfin
  • LeaseCorp Finance
  • NAB

Line of Credit Loans Melbourne – Definition, Perks and Disadvantages

What is a Business Line of Credit?

A line of credit (abbreviated as LOC) is nothing but a standing amount of money which a financial institution can extend to a borrower. The borrower has the privilege to withdraw the available amount of LOC, provided that the borrowed amount never exceeds the maximum limit. In other words, LOC refers to a specified amount of standing credit which a borrower may draw at any time. The borrowed money needs to be paid back within a specific time frame, at a specific interest rate. Thus, LOC allows businesses to easily borrow the required funding, pay it back, and borrow it again (if required).

Unlike a loan, here, the interest is calculated only on the actual amount of borrowed money. For example, if you have a LOC limit of $20k, but you have withdrawn only $5k, then the interest will be charged on $5k (i.e. the actual amount of withdrawn money on LOC).

How Does Line of Credit Help Businesses and Which Types of Businesses Are Suited to Getting It?

In general, line of credit loans are suitable for all types of businesses (especially for small businesses). Poor handling of cash flow or insufficient funding is a common problem for small-sized businesses. Luckily for them, LOC will be one of the most suitable and ideal solutions to ensure sufficient cash flow at the critical times. In fact, LOC is something that every business should ideally have in order to ensure a proper cash flow which is crucial to fulfilling business-oriented goals and growing the company.

Unlike the traditional loan system, that offers you a lump sum amount of cash to be paid back at a variable/fixed interest rate over a specified timeframe, the LOC lets you draw and use the available funds only when you need them. Consequently, this process grants you a better control over your finance. Additionally, you’re only required to pay the interest on your actual borrowed amount.

Also note, LOC is commonly termed as revolving credit. It helps you continually access the available funds, enables a greater control over your business finance, and offers you the freedom to easily take growth-driven decisions.

Major Perks/Benefits of LOC

  • Instant Cash: With LOC, you can easily get instant cash (as per the available limit) from any financial institution.
  • Flexible: Unlike a business loan, a line of credit lets you draw and access money only when you need it. This flexibility enables you to easily and efficiently deal with the occasional cash flow problems that may hinder/impact your business growth.
  • Lesser Interest: As mentioned earlier, you are required to pay interest on the amount that you’ve actually drawn, not the total available amount.
  • Easy Application Process: As a small business owner, if you are eligible for LOC, then you can actually get the funds processed and credited into your account within 1 – 3 days. The application process is simple, easy, and quick.

Some Disadvantages/Limitations of LOC

  • Hard to Get: Your company/business can apply for a LOC only if you have a good trading history, sufficient number of assets, and great credit limit. If not, then it may be really tough and difficult to be eligible for a line of credit.
  • Up-front Fees: In most of the cases, you need to pay some up-front fees in order to obtain the funds.
  • Liability: For any reason, if your business fails, the borrowed amount of LOC needs to be repaid. Otherwise, you will be personally liable to re-pay the debt based on the structure/foundation of your business.

Line Of Credit Interest Rates & Fees

In Australia, the interest rates for the line of credit loans can actually vary (depending on your financial institution). In most of the cases, the interest rate can be something in the range of 5% – 13%. Some up-front fees may be also charged when you’re applying for LOC including application fees and establishment fees etc.

Alternatives Forms of LOC

The typical term loan can be an alternative to LOC where the entire lump sum amount of money is paid to your bank account and you have a specified time-period to repay it back.

Four Well-known Australian Companies That Offer LOC

Now that you’ve already revealed the basic nitty-gritty of line of credit loans, you can start making smart and meaningful choices to growing and financing your business. If you feel that LOC can be a good option for your small-scale or medium-sized business, then you can contact the below-mentioned Australian companies and submit your loan application. Rest assured that each of these lenders is reliable, reputable, and ready to fund your business.

For your reference, here’s the list of companies where you can apply for LOC.

  • Lend.com
  • businessloans.com.au
  • moula.com.au
  • commbank.com.au

Guide to Merchant Cash Advance

What is Merchant Cash Advance?

Are you a business owner and need quick access to funds to sort out a short term capital issue? Well, not worry; you can leverage your credit card merchant to access cash. A merchant Cash Advance is an excellent alternative to the strict credit and long approval process required for a conventional bank loan. Now, to be clear, a merchant cash advance is not a loan, but an advance payment agreement against your investment’s future income.

How Merchant Cash Advance Works

A merchant cash advance service provider gives you funds and then you repay the amount using a certain percentage of your credit card receipts. This could be daily, weekly or monthly. The percentage is known as retrieval rate or holdback rate. It can be anywhere between ten to twenty percent depending on your venture’s credit card sales, the repayment period and the amount being
advanced. The repayment period can be as long as 24 months or as short as 90 days depending on the advance amount.

The exact amount of the advance will be determined by your credit card sales. The service provider will review your business’s receipts over the last 3 to 6 months to ascertain how much you are eligible for. But generally, the amount can range from 30 percent to 200 percent of your credit card transactions. Repayment starts immediately you receive the advance.

How Merchant Cash Advance can help your business

Nowadays when you think of a business loan, most us think of banks. That’s perfect for large corporations and big businesses but it can be unfeasible for individuals and small independent businesses. If you can relate to this situation, then merchant cash advance is for you. If you need money quickly and your business has enough cash flow to make advance payments on a daily basis, then this loan can help. The MCA offers a perfect solution for small businesses to secure funds for growth.

An option for all types of businesses

The MCA is ideal for all kinds of businesses including partnerships and sole traders. It can also be used by beauty salons, entertainment venues, restaurants, clubs, pubs, retailers and more.

Pros of Merchant Cash Advance

  • Easy to set up

One of the main advantages of this option is that you can obtain money very quickly and easily. Actually, it can be secured in less than a week! This can be of great help if you need money quickly and you no other alternatives.

  • Easy to get

Securing this kind of funding is fairly easy as they have high approval rates. Technically all you need to apply for the MCA is a government ID and at least 6 months of bank statements. But keep in mind that some service providers may require extra documentation.

  • Perfect credit is not a must

Most cash advance companies check your personal credit as part of their review process. However, perfect credit is not required. This feature can be important for business owners who have little or no credit information.

  • No collateral

Another outstanding advantage of the MCA is that the service providers do not require collateral. Although the provider may take a lien against some of your business’s assets, you do not need to have collateral to get funds. The only mandatory requirement is a good sales record and solid potential for future sales.

Cons of Merchant Cash Advance

  • High interest rates and fees

Perhaps the biggest disadvantage of a merchant cash advance is high interest rates and fees. The fees charged by most service providers ranges from 20 percent to 80 percent of the funds advanced. So make sure you know the fees charged by your lender to decide whether not the funding is viable.

  • It is a purchase of your of a certain percentage of your future income

Technically, the MCA is not a loan. The lender buys a section of your future income at a certain discount. Though this is convenient when it comes to repaying the loan, it reduces your future revenue significantly.

  • Not Regulated

The service is not governed by any laws or regulated by any government body. As such, the fees and interest charged can be high. Keep this in mind when looking for the ideal lender.

  • Short Terms

Compared to other small business funding option like bank or credit card loan, the terms of an MCA can be very short.

Merchant Cash Advance Interest Rates & Charges

As mentioned earlier, this kind of funding can be extremely expensive. Some rates can be as high as 80 percent of the cash advance.

Alternatives to Merchant Cash Advance

  • Term loan-This is similar to a car or a mortgage loan. You borrow a certain amount which is repaid over a certain period. The rates are variable and can be unsecured to secured. The repayment period can be anywhere between 12 months to 5 years.
  • Bank loans; A good option for both large and small businesses. The problem however, is meeting the strict requirements of the banks .You must have a collateral and an appealing credit history.
  • Asset Based Loans-This is where you use your business’s assets to obtain funding. This is ideal for firms that have considerable asset value and don’t want MCA. The rates are usually lower than that of a merchant cash advance.

Companies/businesses that offer Merchant Cash Advance services

  • Beyond Merchant Capital -https://beyondmerchantcapital.com.au
  • Merchant Cash -https://merchantcash.com.au
  • Aaafin -http://www.aaafin.com.au
  • Adyen.com -https://www.adyen.com

Commercial Bill Of Exchange Melbourne: Definition, Perks and Disadvantages

Commercial bill of exchange guide

Definition

A commercial bill of exchange refers to a formally written order which binds a party or organization to pay a sum of money to another party on a given date. A bill of exchange can be transferred and can compel one party to pay a third party that was not involved during the process of its formulation. In essence, bill of exchange is a post dated check and usually it does not give interest. However, it may generate interest in case it is not paid on the predetermined date. Bill of exchange enables a trading partner to be paid for its value of goods or services by the business partner.

Advantages of bill of exchange

Commercial bills of exchange have several merits to the parties involved.

1. It provides a framework enabling business transactions between the bank and the borrower.

2. Moreover, bill of exchange provides a convenient means for acquiring goods and services on credit and payment on an agreed later date.

3. Another advantage of using bill of exchange is that it offers a conclusive proof and evidence of transaction. In the event one party fails to make payment, one can follow a legal channel to get justice.

4. In addition, bill of exchange is easily transferrable. This enables the parties involved to settle their bills easily.

5. The other advantage is that it gives the user an easy way of cashing money before date by discounting besides being negotiable.

Disadvantages of bill of exchange

However, bill of exchange also has several disadvantages.

1. The bank can only discount the bill after they are fully satisfied that the other party is reliable and his or her credibility is not in question.

2. Moreover, incase where the bill is dishonored the charges will fully be transferred to the party involved. This is often a burden to the party.

3. Another demerit is that the payment dates are fixed and any default may lead to the party being extra charged.

Alternative forms of finance

The alternative forms of finance are channels that are not within the normal traditional finance system. They include bitcoin, business lending, cryptocurrencies, mini bond and social impact bond. Others include shadow banking, community shares and private placement among others.

Types of loans

There are several types of loans depending on the specific intention or use of the loans. Student loans are given to students to help them cover education cost.

Student loans exist in two forms: federal student loans and private student loans. Federal student loan attracts low interests rates is has friendly repayment terms.

Another type of loan is mortgage loan which is distributed by banks to allow the borrowers to buy homes they cannot afford to buy in cash. Mortgages also attract low interest

Auto loans allow individuals to acquire vehicles on loans from the bank or from the car dealers directly although the car dealers usually give loans with a higher interest.

Secured loans are given to borrowers but it is tied on the property of the individual borrowing. The amount of loan given depends on the value of the property of the individual borrowing.

On the other hand, unsecured loans are not tied to the property of the individual borrowing. Unsecured loans are tied on the amount of income and a solid payback plan.

A more commonly used form of loans is personal loans which are often use for personal expenses and do not have a given purpose. Personal loans are attractive because they can help individual in setting off an immediate need.

Small business loans are convenient for entrepreneurs and aspiring business persons to help them in expanding the businesses. Small business loans are best forms of loans for starting small scale businesses.

The other form of loans commonly used is borrowing from friends. It is not a good form of loan since when one fault in payment it may strin relationship. It is better to use a promissory note to bind the parties involved.

Cash advance is also a form of a loan that can be used by some parties as a short term loan against a credit card. It can be used pay for services and goods through the bank.

Interest rates

Most commercial bill of exchange companies charges an interest rate of three to twenty five percent of the loan depending on the company. Other charges may include charges on default payment, late payment and not submitting right information to the bank.

Conclusion

Bill of exchange involves remitting some money to a client on a specified date. It enables the payee to receive some specified amount of money on loan to pay for his or her goods and services. Bill of exchange has both advantages and disadvantages. In essence, it helps many people to acquire goods and services and make their payment later.

Business Credit Cards For Melbourne Small Businesses

What is a Business Credit Card?

A business credit card is simply a credit card that is used for business purposes rather than individual’s personal use. They are available to many business types and sizes. Aside from everyday use, they aid businesses in building a credit profile in order to improve the future credit borrowing terms.

Business Credit Card Application Process

In most cases, business credit cards are offered by many lending institutions. Their application process is much similar to that of a standard credit card application. The application by business borrowers can be done with or without an employer identification number. This makes it easy for all business types to obtain a business credit card.

In order to obtain a business credit card, you must complete an application. Their application is easier compared to non-revolving business loans due to the fact that the process is automated with an immediate credit decision. Also, they come with numerous added benefits. Due to this, business credit cards have slightly higher interest rates compared to traditional loans. However, credit card debt is usually unsecured, and this raises financing costs because of the higher risks for lenders.

Business credit cards can be applied with an employer identification number in case a business borrower has one or even use his personal social security number. The lenders majorly base their underwriting analysis on the information included in the new credit card application. In most cases, businesses are not subjected to minimum requirements required for credit scoring, income, and revenue analysis so they must depend on the backing of a personal guarantee. A business card provision is a personal guarantee that holds the person applying for the credit card liable for card fees and payments.

Advantages of a Business Credit Card

1. Easy qualification

Qualifying for a business credit card is much easier compared to a bank loan. If you have a small business that is well established or reasonable personal credit, then most credit card organizations will be happy to extend the credit card for your use.

2. Access to easy financing

If you are running a small business, then you will need access to cash for daily operations. However, lack of enough cash will bring some challenges during the purchase of items. In this case, a business credit card will come in handy when you need equipment, business supplies or even capital improvements.

3. Rewards

Most credit card companies offer incentives and rewards for using their own business credit cards. You can earn cash, airline miles among other rewards for making purchases using your business credit card.

4. Build credit

It can help you in building and improving your business credit. This can be advantageous if you apply for any bank loan in the future.

Downsides of a Business Credit Card

1. Personal credit issues

Majority of the business credit cards need a personal guarantee, meaning that you must give out your social security number as well as previous credit history to qualify. However, this can bring some issues for your personal credit along the way then credit companies report your business activities on the personal credit, or even become liable for over extended or late credit.

2. High priced financing

Financing purchases through business credit cards are very expensive. This is because you end up paying some higher interest rates, late fees and also high annual fees to have the card.

3. Less purchase protection

If you use a personal credit card, then most credit organizations will provide purchase protection. However, this protection is not the same when it comes to business credit cards. This brings more difficulties when returning purchased goods, reversing fraudulent charges and even correcting billing errors.

4. Security issues

The use of business credit cards includes the possibility of some fraudulent charges, especially from a stolen card number. Ensure you keep your credit card safe and also be careful about how you provide your card number online.

Business Credit Card Interest Rates

Business credit cards have interests rates that vary from one bank to another and one card to another. Majority of the lenders offer a wide range of business credit that is aimed at different business types, and some credit cards have specific eligibility criteria such as minimum turnover.

Top companies that offer business credit cards in Australia

  • Bank of Melbourne at a purchase rate of 9.99% and an annual fee of $55
  • Bank west at a purchase rate of 11.99% and an annual fee of $99
  • Newcastle permanent at a purchase rate of 9.99% and an annual fee of $55