TL;DR: Invoice factoring is one way to fund unpaid invoices, but it's not the only option. This guide explains the differences between factoring, invoice finance, and invoice discounting.
Accountants & Bookkeepers serve their clients in many capacities, but they all have one thing in common: They are the critical piece in ensuring the finances work so businesses thrive. If you’re a bookkeeper or accountant who works with small business, one of the most crucial roles you can play is managing cashflow.
What is Cashflow?
In business, two of the most important words in the English language are “cashflow.” It’s important for small businesses to recognise that this concept is different from income or profit on an accrual basis. Just because a business finishes work and sends an invoice doesn’t mean they’ll get paid right away.
Managing cashflow can be challenging when sales are down, but it can be even more difficult when sales are up. Profitable and growing companies fail from poor cash management. If deals are coming in left and right, a business needs cash to fund the work for these projects, not to mention critical expenses such as payroll, vendor bills, and other expenses. Invoice factoring fixes this issue by bringing forward payment when it’s needed.
What Does Good Cash Management Look Like?
The golden rule for good cash management is that it’s easiest to stay on top of it. A little bit of preparation results in a lot less stress over the long run.
Luckily – there are a lot of cashflow management tools out there that can make this easier. One example is Debtor Daddy, who can help you handle your overdue payments; but there are so many more out there.
As an Accountant/Bookkeeper – you get the opportunity to proactively prepare clients for any rainy days.
Below are a few common ways you help your clients manage their cashflow better:
- Ensure the books are timely and accurate
- Understand your clients’ relationships and payment histories
- Shorten payment terms with customers where possible
- Lengthen payment terms with vendors where possible
- Translate accounts receivables into your cashflow statement
- Use invoice finance when needed to allow growth and for those unavoidable cashflow issues that nearly all small businesses will face.
What Is Invoice Factoring?
With proper planning, you can help your clients get into a stable position.
However, small businesses often don’t ask their accountant until they’re in trouble, or sometimes, not until they are deeply in trouble! And if a client is struggling to make payroll, they probably don’t want to hear, “You should have set this up months ago.”
Internationally, Invoice Factoring is a well-known solution to relieve cashflow pressure and allow growth. However, Invoice Factoring has not been suited to small business needs, until now.
FundTap’s Invoice Financing
FundTap redesigned and fixed invoice financing to give clients complete control over their accounts, with a highly digitized invoice financing system. The simple, transparent service facilitates business growth quickly and easily by turning outstanding invoices into immediate cash, so your clients can grow and run their businesses, pay their employees and bills, and easily manage cashflow.
FundTap uses a different approach than traditional bank finance to help you solve cashflow hurdles as they arise and integrates seamlessly with cloud-based accounting software such as Xero, MYOB, QuickBooks and Reckon.
Accessing it is a simple process: If you have a trading history, sign-up for FundTap and link your accounting software.
- Sign-in and select the outstanding invoices you want to be paid.
- FundTap’s team reviews and approves the invoices then pays you. Approval is usually within hours.
- When your customers pay you, the money goes into your account, NOT a FundTap trust account, and you repay FundTap by direct debit. If you expect any delay in payment, you can change the date we direct debit.
There’s no application fee, establishment fee, system fee, and no early repayment fee. Instead, you pay a one-off fee, only when we advance your money. Even better, with no lock-in contract, you can use FundTap only when you need funds, and don’t pay a cent when it’s not needed.
The combination of your business banking facility and the variable funds FundTap provides means you have the flexibility you need to meet the ever-changing cashflow requirements of a small business. Plus, you’re backed by our supportive team that understands the NZ/AUS business market.
Help Your Clients in Good Times and Bad
Bookkeepers and accountants can do many things to help their clients manage cashflow, and almost nothing is more important to a small and growing business.
82% of all businesses that failed said cashflow was the number 1 reason for failure. So your role in advising clients manage their cashflow issues is critically important and a huge value add.
Finally, know that invoice financing is another way to help your clients with cashflow at any stage of their business. Those accounts receivable are their asset and can be tapped now, so they aren’t at the mercy of bad payment terms or slow payments from customers.
Help them prepare during the good times. Help them manage during the rough times.
Related Resources
Frequently Asked Questions
How does invoice finance work?
Select an outstanding invoice and receive funds within hours. When your customer pays, the advance is settled. You choose which invoices to fund.
Is invoice finance a loan?
No. You’re accessing money you’ve already earned. There’s no new debt on your balance sheet.
What does invoice finance cost?
FundTap fees start from 4%. No monthly fees, setup fees, or minimum volumes.
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