Small and medium-sized enterprises (SMEs) throughout New Zealand face a number of challenges – and managing cash flow is among the most pressing.
Invoice Finance is becoming an increasingly common form of business finance in New Zealand – helping businesses manage cash flow and support long-term sustainability and growth.
If you’re unsure whether Invoice Finance is right for you, what the pros and cons are, or whether other business finance options in NZ may suit your needs – this article is here to help.
What is Invoice Financing?
One of the key causes of cash flow issues for SMEs in New Zealand is the delay between delivering products or services and receiving payment for issued invoices. Some businesses wait 30, 60 – even 90 – days to be paid.
This cash flow gap puts pressure on even profitable businesses as they try to cover day-to-day operating costs. Invoice Finance in New Zealand helps solve this challenge by unlocking working capital that’s tied up in unpaid invoices.
Instead of waiting weeks or months to be paid, Invoice Finance gives businesses access to up to 80% of the value of outstanding invoices – often within just 24 hours. Once those invoices are paid, your business then receives the balance of outstanding funds, minus facility fees.
So, if you’re weighing up the pros and cons of Invoice Financing, let’s break down the key advantages and potential drawbacks.
The Benefits of Invoice Finance NZ
1. Improved Cash Flow
The first and most obvious advantage of Invoice Finance is more predictable and controllable cash flow. SMEs in New Zealand no longer need to wait for their invoices to be paid to access the money due to them and thus be able to meet necessary operational expenditure and invest in time-sensitive market opportunities to grow.
2. Fast Access to Funds
Other business finance options in NZ can suit some SMEs – but unlike traditional bank loans and other forms of funding, Invoice Finance offers much faster access to working capital. This gives SMEs greater flexibility and control over accessing the funds they need, when they need them.
3. Scalability For Your Business
The flexibility of Invoice Finance isn’t just about fast access – because the facility is tied to the value of submitted invoices, the funding available grows as your business revenue grows.
4. No Property Security Needed
Invoice Finance doesn’t require you to offer property or other assets as collateral. That’s because the invoices themselves act as security for the facility. This lack of a security requirement means more SME owners can access this flexible form of business finance.
The Disadvantages of Invoice Finance NZ
1. Facility Fees
There are many benefits to Invoice Finance in NZ – but it’s important to remember that it’s not a free form of business finance. As with any funding solution, there are associated fees and charges.
The cost of Invoice Finance will vary depending on the provider, so we recommend speaking directly with your chosen lender – whether that’s ScotPac or another institution – to understand the pricing and terms of any debtor finance arrangement in NZ.
2. Maintaining Confidentiality
There are two types of Invoice Finance: Invoice Factoring and Invoice Discounting. With Invoice Factoring, your finance provider collects payments directly from your customers – which means it’s difficult to maintain confidentiality about your funding arrangement.
With Invoice Discounting, your business remains responsible for collecting outstanding invoices, allowing you to retain control and keep the use of Invoice Finance confidential.
3. Limited Availability
Invoice Finance can be highly effective for covering cash flow gaps, supporting market expansion, and managing unforeseen costs. However, it is important to note that Invoice Finance is limited in its ability to help businesses cover bad debts. If a customer fails to pay entirely, your business may still be responsible for the loss. There is an alternative business finance option called non-recourse factoring. However, this solution comes at a higher cost to your business in terms of fees.
Another limitation is that Invoice Finance is only available to SMEs that operate business-to-business (B2B). If your business operates in the B2C space and you’re exploring finance options in New Zealand, reach out to the ScotPac team today to learn how we can help.
4. Cash Flow Management is Essential
The advantage of Invoice Finance – the speed at which injections of cash can be put into your business – also presents a challenge. Without careful cash flow management, some SMEs may risk overextending themselves financially.
Is Invoice Finance the Right Choice for Your NZ Business?
As you can see, there are both pros and cons to Invoice Financing in NZ. Whether it’s the right fit for your business depends on your business model, industry, margins, objectives, and current circumstances.
In general, for high-growth businesses and SMEs needing to fund operational costs like payroll and supplier payments, Invoice Finance can be extremely helpful. For exporters and large-scale manufacturers, it can offer greater certainty in an otherwise unpredictable global supply chain.
However, if you are operating in more low-margin sectors – such as wholesale trade – we recommend speaking to the ScotPac team of lending specialists about the benefits of Invoice Finance NZ for your business.
Invoice Finance in New Zealand is growing in popularity – but not all providers are created equal. As the largest non-bank lender in New Zealand and Australia, ScotPac can tailor a finance solution that works specifically for your business. With over 35 years of industry experience, more than 9,300 businesses supported, and over $26 billion in invoices funded annually, there’s no team better positioned to help your business with Invoice Finance New Zealand than ScotPac.
