Invoice finance Australia can sound a little intimidating for someone who is not very familiar with the ins and outs of invoice finance. If you want to know how invoice factoring works and have a complete guide in financing your business, you have to at least be acquainted with some funding terminologies.
Cash flow finance – Cash flow financing is a form of funding in which a loan made to a business is supported by the cash flow that said business is expecting. When you say “cash flow”, it means the amount of cash that “flows” in and out of the company for a given period of time. When a business is expected to get an income in the future, this cash flow is what will be used to pay back the debt.
Accounts receivable finance – When there are issues in the cash flow, accounts receivables financing is designed to help solve it in the form of cash advance or lines of credit. Receivables financing comes in many funding names and jargons and you may sometimes find it confusing to understand, but it’s concept is actually pretty simple.
Invoice discounting – Other terms for this includes “bill discounting” or “purchasing bills”. Invoice discounting is an agreement whereby the business recovers an amount of sales bill from the finance providers before it is due. It is when a business uses their unpaid accounts receivable as collateral for a loan. These finance providers who serve as mediators or intermediaries charge for a service fee.
These are just some of the terms to help you get started in knowing how to fund your business. The more you explore and learn about the different finance terminologies there are, the better you’ll understand how business financing works, and you will be one step closer to cracking the financing code in Australia.