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Invoice finance
the answer to 90-day credit terms

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Invoice finance – the answer to 90-day credit terms

While New Zealand is a nation that is run on the energy of small businesses, there is much money to be made from providing goods and services to large corporates and co-operatives. These larger businesses can offer high value and long term contracts … but at a price. That price is often 90-day credit terms. If you don’t accept those terms, then the work is going to go to someone else who can and will accept them. Here’s where factoring or invoice finance can be your new best friend.

Whether or not to accept 90-day credit terms or turn down the business is an agonising decision for the small business owner. Working with large corporates could double, triple, quadruple the turnover of your business. But in order to fulfil the orders or provide the services, you need more staff, raw materials, equipment, tools, technology. Do you go for it or not? How will you fund the extra resources? What happens if the money runs out before the invoices are paid? Have you got the stomach for it?

To help make the decision of whether or not to accept the contract, the small business owner will likely look at a number of different business finance options. These might include a bank overdraft, a business loan, or personal cash injection via a loan against the family home.

But what if you already have a bank overdraft and it’s not enough? What about the stress of making sure you meet regular loan repayments? Who really wants to gamble the family home?

Invoice finance, also known as factoring, could be what you need.

Invoice finance is a business finance product specifically for businesses that provide goods and services to other businesses on credit. You start by converting your current debtors ledger to cash, with the lender paying out up to 80% of the ledger to you straight away. Then every time you raise a batch of invoices, you send that batch to your lender, and they will again pay out up to 80% of the ledger. Your customer pays the finance company, who then passes on the outstanding 20% of the invoice.

With a factoring or invoice finance facility, the worry about waiting for 90 days for your large corporate customers to pay disappears and you can accept that contract.

A factoring facility can be tailor-made for you

One of the decisions that the small business owner faces when they decide that factoring is right for them, is which customers to factor. There are a number of options to consider before signing up to the contract that requires 90-day credit terms.

Factor your whole ledger before taking up the contract

Start by securing the cash you immediately need which will allow you to make the necessary investments (tools, staff, equipment, technology, raw materials) for taking up that contract with the 90-day credit terms. For the continuance of your factoring facility you now have two options:

  1. continue to factor invoices to all customers as well as your big corporate customer, giving you an even bigger boost to cashflow when that first invoice to the big customer is raised, or
  2. continue to factor invoices to all customers except your big corporate customer– you might find that this is all you need to do to secure the cash you need to take up that contract. This will also save you money in the long run because your current customers will be on shorter credit terms, meaning that the money you borrow against their invoices is for a shorter period of time than the 90 days you will be borrowing for against invoices to your large corporate customer.

Start factoring when you produce your first invoice for the large corporate

For business owners with an iron stomach, this might work. Maybe you have decided to just borrow against invoices to the large corporate. This will work if you have money in the bank to invest in the resources needed to take up the contract. And because you can often use factoring and invoice finance alongside a bank overdraft, maybe this option will work for you.

Consider single invoice finance

Maybe it’s actually just a one-off job, or you really only need a short-term injection of cash because your bank overdraft isn’t going to last the distance. Single invoice financing (also called spot financing, spot factoring, and invoice discounting) allows you to enter into a short term rather than a long term arrangement with your finance company. The usual factoring rules apply: get paid up front for up to 80% of the value of the invoice, then get paid the remaining 20% (less interest) when the invoice is paid to the financier. The upside of a facility like this is that you can often use it again later with a new customer, or when you do another job for the same customer. Your finance company would need to check the creditworthiness of your customer … but hey you’re looking at funding against a large corporate so we’d like to think they are safe!

So what now?

Consider getting a facility in place before you need it so you can say “yes!” to that contract. Don’t gift the contract to a competitor, when there is a simple solution that you won’t lose sleep over.

Want to know more? Visit our FAQ page.

About Us &

What We Do

Asset Finance Limited has been supporting New Zealand small business for over 20 years and is a non-bank issuer governed by the Reserve Bank. Its professionalism is unquestionable and its reputation on the New Zealand business markets is impeccable. Asset Factors operates from their Auckland and Whakatane offices and has the clout of this New Zealand icon company to support its factoring operation. We are also able to provide vehicle, plant and equipment and property loans directly from Asset Finance.

We are not a bank, you are not a number

While New Zealand banks are very good they will always lend on their terms only and do not have the same flexibility that our specialist invoice finance company does. We learn our client’s idiosyncrasies and adapt our facilities to suit individual needs in the spirit of partnership.

Professional yet flexible

We have professional, international grade systems and an interactive client portal that enables us to provide headache free funding solutions. Our flexibility in no way compromises the professionalism that Asset Finance has been delivering to customers for many years.

Competitive rates

Factoring with Asset Factors does not need to be expensive as our tried and proven systems serviced hundreds of New Zealand clients in the past. We charge a simple interest rate and a single admin fee based on invoice value. If your invoices are paid within 90 days this is it, we do not charge additional fees when an invoice goes to 30 or 60 days as many other New Zealand factoring companies do.

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