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Short of cash?

It has been some time since I first wrote about the subject of cash flow finance and its benefits. Now with Christmas upon us and the usual cash leakage that occurs at this time of the year I thought a recap would advantage many as there is ample time between now and Christmas to get facilities in place.

The Christmas cash shortage starts with close downs and holiday wages to employees prior to Christmas and extends through the early part of the next year from weaker sales and production months in December and January. Not to mention customers on holidays and experiencing the same cash shortage and withholding normal payment terms. And just when you think everything should be returning to normal in February you cop the business activity statement quarterly whammy.

The answer, in most cases, is cash flow finance, invoice discounting or factoring. Each has a defining difference; however, they effectively provide the purchase by a factor and the sale by a business of book debts (your debtors) on a continuing basis, usually for immediate cash.

Now before some of you turn off, let me erase some common misconceptions. Factoring during the ’70s and ’80s got a bad name as a “loan of last resort” and of “sending companies broke”.

Fact 1:
yes, it was a last resort; however, mostly because it was misunderstood and not pushed as a product by banks because banks could provide an overdraft at the same price margin but with real estate security.

Fact 2:
most of the businesses that went broke did so because they were not profitable. Factoring simply kept them buoyant a little longer, and as a result got the blame.

A lot of businesses still utilise a bank overdraft as a means of working capital. Unfortunately, it is often restricting for growth because:

  • you are restricted by the value of real estate assets (read family home) as security;
  • if you suffer a downturn in profit, a bank may view this as a crisis and cite it as a reason for rejecting ongoing, existing, or increased facilities. An invoice discounter views this as an opportunity;
  • if a partner leaves the business (wife or otherwise) withdrawing funding or securities, a traditional bank may seek a reduction in facilities. An invoice discounter can replace the funds by recognising the value of accounts receivable or debtors;
  • a business acquiring another business may require the initial funding of the ongoing sales, or even plant and equipment.

A defining point of distinguishing factoring or invoice discounting is that it is not debt, since the proceeds of factoring are self-liquidating — that is, they are repaid out of the proceeds of trade debtor receipts — no set monthly repayments.

In addition to the “send you broke” conspiracy, the other most common and misguided objection is that invoice discounting costs too much. Think again. Isn’t “opportunity cost” a figure in your decision making process to invest within your business in any case? Then why not with invoice discounting when evaluating a source of capital? As such the question of invoice discounting begs another question — what does it cost you not to use invoice discounting?

Some points to consider here are:

  • by being able to grow the business (not being hamstrung by cash) you may be able to win customers away from competitors by either growing market share or maintaining market share in a growing market;
  • by having funds readily available you may be able to shift the balance of power in negotiations with suppliers, opening opportunities for receiving discounts for paying your suppliers inside trade terms and netting these savings off against the cost of invoice discounting;
  • the cost is usually “user pays” in that you only pay for what you use, unlike traditional banking with line fees, facility fees, risk margins, annual review fees, et cetera;
  • the costs of factoring are often defrayed in circumstances. As the invoice discounter gives you the option to carry out many administrative functions you may be able to reduce salary costs (or that clumsy clerk) and at the same time collect debts and increase cash.
  • invoice discounting is NOT disclosed to your customers (another misconception) so you are free to maintain your own collection procedures and deal with your customers in your own way.

Factoring and invoice discounting, then, can help your business leverage its sales to generate the capital demanded by, and a prerequisite for, growth. It provides a steady and flexible source of funds and utilises that asset which may be your business’s most valuable (debtors) and yet is often ignored by bankers.

Having stated the above, I hasten to point out that factoring and invoice discounting are financial resources that will not suit businesses which are under poor financial management, have stagnant or declining sales, are not profitable, have a large (50 per cent) portion of their sales with one customer, have a large percentage of bad debts, or have a large percentage of their debtors who pay in less than 21 days or more than 90 days.

Whatever challenge the New Year may bring, let’s not make working capital one of them.

Phone Wade on: 0412 269 722

Who are we?

‘We’, ‘us’ and ‘our’ refer to Wade Oldham Finance Pty Ltd ACN 070 940 797.

Our commitment to protect your privacy

We understand how important it is to protect your personal information. This document sets out our privacy policy commitment in respect of personal information we hold about you and what we do with that information.
We recognise that any personal information we collect about you will only be used for the purposes we have collected it or as allowed under the law. It is important to us that you are confident that any personal information we hold about you will be treated in a way which ensures protection of your personal information.
Our commitment in respect of personal information is to abide by the Australian Privacy Principles for the protection of personal information, as set out in the Privacy Act and any other relevant law.

Personal information

When we refer to personal information we mean information from which your identity is reasonably apparent. This information may include information or an opinion about you. The personal information we hold about you may also include credit information.
Credit information is information which is used to assess your eligibility to be provided with finance and may include any finance that you have outstanding, your repayment history in respect of those loans, and any defaults. Usually, credit information is exchanged between credit and finance providers and credit reporting bodies.
The kinds of personal information we may collect about you include your name, date of birth, address, account details, occupation, and any other information we made need to identify you.
If you are applying for finance we may also collect the ages and number of your dependants and cohabitants, the length of time at your current address, your employment details and proof of earnings and expenses.

Why we collect your personal information

We collect personal information for the purposes of assessing your application for finance and managing that finance. We may also collect your personal information for the purposes of direct marketing and managing our relationship with you. From time to time we may offer you other products and services.
To enable us to maintain a successful business relationship with you, we may disclose your personal information to other organisations that provide products or services used or marketed by us. We may also disclose your personal information to any other organisation that may have or is considering having an interest in your finance, or in our business.

How do we collect your personal information?

Where reasonable and practical we will collect your personal information directly from you. We may also collect your personal information from other people such as your associates, banks, equipment suppliers, property agents, accountants and lawyers.

Do we disclose your personal information?

We may disclose your personal information:

Prior to disclosing any of your personal information to another person or organisation, we will take all reasonable steps to satisfy ourselves that:

  1. (a) the person or organisation has a commitment to protecting your personal information at least equal to our commitment, or
  2. (b) you have consented to us making the disclosure.

We may use cloud storage to store the personal information we hold about you. The cloud storage and the IT servers may be located outside Australia.
We may disclose your personal information to overseas entities that provide support functions to us. You may obtain more information about these entities by contacting us.

Direct marketing

From time to time we may use your personal information to provide you with current information about finance, offers you may find of interest, changes to our organisation, or new products or services being offered by us or any company with whom we are associated. We may use third party businesses to assist us in managing your account.
If you do not wish to receive marketing information, you may at any time decline to receive such information by telephoning us on 0412-269722 or by writing to us at PO Box 547 Roseville NSW 2069.
If the direct marketing is by email you may also use the unsubscribe function or replying to the email to be deleted from further transmissions. We will not charge you for giving effect to your request and will take all reasonable steps to meet your request at the earliest possible opportunity.

Updating your personal information

It is important to us that the personal information we hold about you is accurate and up to date. During the course of our relationship with you we may ask you to inform us if any of your personal information has changed.
If you wish to make any changes to your personal information, you may contact us. We will generally rely on you to ensure the information we hold about you is accurate or complete.

Access and correction to your personal information

We will provide you with access to the personal information we hold about you. You may request access to any of the personal information we hold about you at any time.
We may charge a fee for our costs of retrieving and supplying the information to you.
Depending on the type of request that you make we may respond to your request immediately, otherwise we usually respond to you within seven days of receiving your request. We may need to contact other entities to properly investigate your request.
There may be situations where we are not required to provide you with access to your personal information, for example, if the information relates to existing or anticipated legal proceedings, or if your request is vexatious.
An explanation will be provided to you if we deny you access to the personal information we hold about you.
If any of the personal information we hold about you is incorrect, inaccurate or out of date you may request that we correct the information. If appropriate we will correct the personal information. At the time of the request, otherwise, we will provide an initial response to you within seven days of receiving your request. Where reasonable, and after our investigation, we will provide you with details about whether we have corrected the personal information within 30 days.
We may need to consult with other entities as part of our investigation.
If we refuse to correct personal information we will provide you with our reasons for not correcting the information.

Using government identifiers

If we collect government identifiers, such as your tax file number, we do not use or disclose this information other than required by law. We will never use a government identifier in order to identify you.

Business without identifying you

In most circumstances it will be necessary for us to identify you in order to successfully do business with you, however, where it is lawful and practicable to do so, we will offer you the opportunity of doing business with us without providing us with personal information, for example, if you make general inquiries about interest rates or current promotional offers.

Sensitive information

We will only collect sensitive information about you with your consent. Sensitive information is personal information that includes information relating to your racial or ethnic origin, political persuasion, memberships in trade or professional associations or trade unions, sexual preferences, criminal record, or health.

How safe and secure is your personal information that we hold?

We will take reasonable steps to protect your personal information by storing it in a secure environment. We may store your personal information in paper and electronic form. We will also take reasonable steps to protect any personal information from misuse, loss and unauthorised access, modification or disclosure.

Complaints

If you are dissatisfied with how we have dealt with your personal information, or you have a complaint about our compliance with the Privacy Act, you may contact our complaints officer, Wade Oldham, on 0412-269722.
We will acknowledge your complaint within seven days. We will provide you with a decision on your complaint within 30 days.
If you are dissatisfied with the response of our complaints officer you may make a complaint to the Privacy Commissioner which can be contacted on either www.oaic.gov.au or 1300 363 992.

Further information

You may request further information about the way we manage your personal information by contacting us.

Change in our privacy policy

We are constantly reviewing all of our policies and attempt to keep up to date with market expectations. Technology is constantly changing, as is the law and market place practices.
As a consequence we may change this privacy policy from time to time or as the need arises.
You may request this privacy policy in an alternative form.
This Privacy Policy came into existence on 5th March, 2014