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Not letting your Accounts Receivable go to waste - 01 April 2012
New Zealand is left trailing Australia when it comes to leveraging the opportunities offered by invoice-based financing and factoring.
Invoice financing has been one of the more robust forms of raising cash through difficult economic cycles, yet New Zealand companies have been slow to avail themselves of the product, says Senior Lending Manager of Lock Finance, John Blackmore.
There are signs now that the market is beginning to register more interest in what can be offered by invoice financing.
“Over the last six months invoice finance has been one area that has been getting quite a bit of activity. Lock Finance has been able to secure new funding of $15 million which we are hoping will have a positive effect on the market,” Blackmore says.
Invoice financing and factoring both rely on Account Receivables to improve cashflow. In factoring, the factoring company takes over the administration of the debtors ledger, assisting with collections.
According to the Institute for Factors and Discounters (IFD) total debtor financing volume in Australia for the December 2010 quarter was AUD$16.1 billion, up 7.4% on the September 2010 quarter but down 2.9% over the same period in 2009.
Total Receivables that were financed during the 12 months to December 2010 were AUD$58.7 billion, down 6.9% from $63 billion seen in the year ended December 2009, reflecting tight credit conditions.
The Australian wholesale trade, followed by the manufacturing sector, were the biggest users of factoring or invoice financing, according to the IFD.
Untapped
New Zealand’s market for invoice finance or factoring is relatively undeveloped compared to Australia’s. Dun & Bradstreet have recently commented that debtor payment terms have blown out to 46.6 days. Invoice finance and factoring can make you get access to these tied up funds weekly.
However those companies without any other assets to borrow against can tap into further sources of cash by using their Receivables, Blackmore says.
Raising cash using Receivables is a very efficient way to get financing and offers a lot of flexibility in how business owners can utilise the cash. For some their accounts receivable can be a good leveraging tool for buyouts.
In Australia, some 5,000 small and medium scale enterprises that have tight cash flow used their Accounts Receivable to the tune of AUD$59 billion to raise cash.
Whether you are seeking additional working capital, options to finance trade, for ways to fund an exit strategy or simply to unlock your call John Blackmore on (09) 375 8518 or Craig Brown on (09) 375 8502.
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