By Stephanie Sword
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20-second summary
- Growing your business while maintaining cash flow needn’t be hard.
- Is it new financing you need or simply a change to your existing arrangement?
- Your choice will depend on how you intend to grow and what your needs are.
- Simple solutions like Invoice Finance can help to free up working capital faster.
- Don’t lose sight of the goal. Make sure any new arrangements really do improve your cash flow.
Full story
Business owners shoulder a lot of responsibility, not the least of which is determining the best and most effective way to grow their business and maintain their cash flow. The answer is not always clear, and that’s when owners need to seek financial advice - the sooner, the better.
Setting a game plan for growth can be daunting, especially since it entails taking a long, hard look at the business’ financial situation. A crucial first step is determining if you need new financing, or simply a change to your existing arrangement. Finding the answer, says James Cudmore, Wespac’s Senior Manager for Equipment Finance, depends on how the business intends to grow and what the investment and working capital requirements will be.
“If the business will need to build additional premises, such as warehouses, then they will want to look at their long-term financing arrangements,” Cudmore says. “But for their cash flow and working capital needs, facilities such as Westpac Equipment Finance, Westpac Invoice Finance or Overdrafts may be more appropriate.”
Cudmore says that, if the business would do best with new financing, it is extremely important that the customer’s needs are matched with the right solution. “Taking out long-term finance to fund the purchase of new vehicles or plant and equipment may not be the best solution for some customers; analysis of the customer’s debt position and cash flow are vital,” he says.
If a business owner simply needs to reconfigure their existing financial arrangement, Cudmore says it’s important that any new arrangements be structured in a manner which helps the customer get the most out of their business while maximising their cash flow.
Show me the money
So how does the level of available cash flow affect financing options? And what if there’s a sudden change in cash flow? Jodi Joyce, Westpac Manager, Business Development, says having effective cash flow is vital to every business.
“When a business relies on credit sales for some - or even all - of their income, keeping cash flow under control can be especially challenging.
“If the business is in a rapid growth phase, or experiences seasonal peaks, it can often be difficult to access the funds the business needs to maximise opportunities. This is when Invoice Finance can really help, by freeing up working capital faster,” Joyce says.
Cudmore agrees. “Cash flow is so important because it will help determine the best financing solution for the customer. This does not only cover which product best suits the customer’s needs, but how that product should be structured. Westpac’s cash flow products are flexible, and many solutions can be varied to best suit the customer’s changing needs over time.”
Growing, growing - wrong!
"One of the more common pitfalls is that businesses will tie up their cash flow by not matching their need directly with the right solution,” states Cudmore. “Westpac’s Business Banking is here to help assist customers look at ways to improve their cash flow by matching their banking and finance needs with the right solution. Our business bankers can add value to customer’s businesses by helping them review their current cash flow, transactional and lending needs. ”
Westpac can help with several cash flow solutions:
Equipment Finance: financing for vehicles, plant and equipment over terms of one to seven years. Repayments are fixed over the life of the facility, which provides certainty for customer’s cash flow. A key benefit of Westpac Equipment Finance is that it allows businesses to acquire the latest technology or additional equipment without tying up capital through large up front payments. It’s also useful for businesses looking for flexible repayment options and in order to ease pressure on your cash flow.
Invoice Finance: a cash flow finance solution that allows customers to convert their debtors’ ledger (outstanding invoices) into cash. Westpac purchases the customer’s invoices and then releases up to 80 percent of the total value of the unpaid invoices. The customer then maintains a business relationship with debtors, receiving payment for invoices in the regular fashion. When invoices are paid, the customer deposits funds into a nominated Westpac account. Westpac Invoice Finance is ideal for customers looking to free up their cash flow without the need for real estate or fixed assets as security in order to borrow funds. Managing your Westpac Invoice Finance facility is simple with online functionality available offering 24/7 access and real-time updates on transactions. Funds are generally available within 24 hours (except on weekends, public and bank holidays).
Business Overdrafts: provide easy and convenient access to additional finance in order to cover business expenses such as paying GST, buying stock or meeting payroll. Business Overdrafts are suitable to cover short-term funding requirements, with smaller amounts potentially not requiring any real estate as security.