Key points;
- Smart use of finance can offset its own cost and produce an overall saving
- Business finance is available even if you don’t qualify via a “traditional” bank
One of the key areas business owners forget to look at when getting a loan or line of credit to support their cash flow is negotiating discounts on the supplier side.
Most people will start and finish with the cost of the finance, and sure, this is a valid area to investigate before committing to a business loan. So let’s start here.
Assume we have a business that has a cash flow gap in the month. This is typical of most businesses. For example, a business may have payment and wages due at the start of the month, but income is not due until the end of the month and in that time the bills keep coming, this creates a cash flow gap.
This gap may be $10,000 over 15 days of the month, and to find the cash and keep the business going business owners will often resort to;
Stretching out supplier payments (losing discounts)
Using B.A.S. and or Super payment to fund business (creating tax debt)
Delay payment to contractors (eroding trust with team)
Not paying themselves (defeating the purpose on being in business)
The alternative is to establish a line of credit to support the business. However, for many businesses operating in this way traditional banking may not be viable options due to, lack of property security, tax debt or lack of financial information.
EZ Business Loans can provide business owners a solution via Small Business Loan or Line of credit and, in most instances, it is assessed on the business trading account history only…. No financials required, and A.T.O. can be paid out via these funds.
So how do you use finance to get control of cash flow and maximise discounts?
Well back to the cost of the line of credit for a second. Let’s just say the line of credit has a monthly factoring cost of 2%* per month.
We know that in our example the cash flow gap is $10,000 and we need it for 15 days. So, in real terms the cost to the business to get access to $10,000 when they need it is only $100**.
Back to our suppliers.
Supplier bills of $10,000 are due in the 15 days and on average they will provide a 5% discount for payment within their invoice terms. We will save $500.
Less the cost of the finance we have saved $400 this month by using a line of credit.
The key points to remember:
Check out your supplier contracts and see if there is a discount for early payment
If there isn’t one, ask for one!!
Review your supplier arrangements at least annually, look for suppliers who support you in business
Look at the cost of finance, but don’t stop there look at what the finance achieves you, does it get you a greater discount, will it help you increase income.
Review your own cash flow at least 1/4’ly to see where your can find more money
If you are not sure what your cash flow gap equals, we recommend working with a Provident Lending and Business Solutions consultant to understand your cash flow cycle.
To see if you qualify for a line of credit apply now via our EZ application.
*Cost of facility is determined by credit analysis of the business factoring trading account performance and credit scores
**Cost calculated as [($10,000 required funds x 2% factor rate / 30 days) X 15 days]
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