Invoice Finance is something that is used by Importers all over the world. It can provide instant liquidity, business flexibility and growth.
At Apricity Finance we have experience in dealing with Importers and their financial needs, especially as relates to clients experiencing fast growth and spikes in trading volumes, which may cause cash flow stress.
How does invoice finance work for importers?
Big customer groups often delay invoice payments to their suppliers to 30, 60, 90 or even 120 days. This can affect the strength and consistency of a company’s cash flow and may even mean the difference between growth and insolvency.
For importers looking to undertake their next import deal, invoice finance can provide instant cash when needed the most.
According to OEC (Observatory of Economic Complexity) in 2016, Australia’s imports were worth $181 billion, making Australia the 21st largest importer in the year, with importers taking delivery of everything from cars, gold, tyres, furniture, light fixtures, medical instruments and medicines, to food, clothing, jewellery, leather, precious metals, liquor and farming equipment. The bulk of products coming in to Australia originate in Asia, driven by China, Japan, Thailand, Malaysia and South Korea.
What is invoice financing?
First up, it is not a loan. Invoice financing (which can also be called invoice factoring or receivables factoring) is simply a way to have your invoices paid faster.
To qualify for a loan from major institutions you must meet certain criteria – and these days we are seeing more of these institutions demand personal property be put as collateral for the loan. But that’s not the case with invoice financing.
When a business uses invoice finance, they use an invoice financing company such as Apricity – to pay their invoices faster. It is the equivalent of being paid immediately by their customer, minus a fee (in our case, 3% for 30 days). The collateral used is the invoice itself. When the invoice is paid by your customer on time, the debt is cleared.
In Apricity’s case, our criteria for our importing customers is that they sell to high credit quality customers, such as government bodies, major stock exchange listed companies and larger private companies. We run credit checks on our clients’ customers to ensure their creditworthiness. Once they’re approved, we will pay our clients up to 95% of their invoices upfront. We can pay the balance of the invoice, less our fees, once the invoice is settled.
What are the benefits of invoice financing for importers?
Invoice financing is an agile and flexible funding solution, and can be a great solution for growing companies in the business of cross-border trade.
Let’s say you import goods from Bali, and you sell all of your product to a national Australian distributor. They take delivery of your shipment, but delay your payment for 120 days, leaving you with no cash flow. How will you pay your overheads – wages, property, licensing – and how will you fund your next import purchase to make your next sale?
This is where invoice financing can help. Instead of waiting for that client to pay you, an invoice company can pay you the money upfront, for a fee, taking you out of stalemate and back into play.
The other upside to remember is that when you deploy an invoice financing strategy, you are selling assets not borrowing money. You do not incur debt (apart from the administration fee), your liabilities don’t increase, and there is no adverse effect on your balance sheet or other financial statements.
How can we help
Apricity has significant experience in this area. One of our clients, an importer of household goods, came to Apricity seeking funding as they had the opportunity to distribute goods as part of a ‘special buy’ program. The importer needed funding to cover the period between when the goods were supplied and when the invoice was paid. Apricity was able to fund the invoice, and it resulted in a good news story for their business, with the goods selling out within hours! This success then paved the way for the Importer to secure another opportunity to sell goods in this way.
Another client, a food importer, secured a major new customer. This meant they had to dramatically increase their inventory stock and posed an immediate challenge, as they were required to pay their suppliers at time of purchase while waiting on 60-day payment terms with the supermarkets. Apricity has allowed them to continue to run their business smoothly, confident they have enough stock on hand to supply supermarkets whilst meeting obligations to their suppliers.
You can read more about these here.
Contact Apricity today so see if we can help your business.