Why are more SMEs in Australia turning to Invoice Finance?
Invoice Finance is one of the more accessible business finance solutions. If you are a small or medium sized enterprise (SME) with a bad credit score or if you are a start-up with insufficient creditworthiness, you can still unlock the working capital locked up in your unpaid invoices to alleviate cash flow and fund your ongoing growth and success.
Invoice Finance offers a more accessible option to a greater variety of Australian businesses.
With ScotPac Australia, our lending specialists work with you and your business to assess the strength of your eligibility and ensure that we find a customised business finance solution that suits you.
Why is Invoice Finance more accessible?
Unlike business loans or other forms of working capital solutions, Invoice Finance utilises the value of outstanding invoices to provide the security needed for advancing much-needed cash.
This allows lenders, such as ScotPac to bypass many of the strict requirements of traditional loans.
Similarly, approval is often based more on the financial stability of the borrower’s customers who owe money rather than the creditworthiness of your business. This makes Invoice Finance more viable for new businesses and those with anything other than good credit history.
What is the challenge of having bad or no credit scores?
What is a bad credit score?
Your credit score is a measure of how risky a lender considers your business to be. Bad credit, meaning a low credit score, might reflect missed or late repayments on business loans or other finance solutions in the past. It could be a result of high credit card balances, maxed-out lines of credit or legal disputes.
Unfortunately, a poor credit score can stay on your record for a number of years and affect your ability to borrow the money you need to fuel your business’s success.
What is ‘no credit score’?
New businesses have a similar challenge in that their lack of experience means they have little to no credit history.
Past instances of borrowing money allow one to build up a track record of borrowing and timely repayments. Without having that record, it is hard for lenders to gauge the risk of lending you money. Similarly, start-ups might exhibit a lack of established business relationships which can further complicate matters when seeking to apply for a business finance solution.
How can you qualify for Invoice Finance with no or bad credit?
At ScotPac, and with many other finance providers, we focus on a range of criteria in assessing eligibility for Invoice Finance.
1. Clients with strong credit histories
Of utmost importance is the existence of valid, unpaid invoices issued by your business to another business for completed work or delivered goods.
Because the unpaid invoices themselves serve as security for the facility, it is more important that your clients/customers have strong credit histories (i.e., timely payment records), than your own credit score. Lenders will often run checks on customers on the invoices.
2. Strong invoicing management
It is important that you use proper accounting services, invoicing software and payment systems so that your accounts are transparent and certifiable.
Even new start-ups and SMEs with no or bad credit scores who can demonstrate clearly the unpaid invoices from otherwise trustworthy clients can be eligible for Invoice Finance.
3. Registrations
All established businesses in Australia, regardless of how long you have been in operation, should be fully registered, such as having an ABN and being registered for GST. This helps lenders verify your business’s eligibility for Invoice Finance.
How can you improve or build good credit?
There are several ways to improve or build up a good credit score. These include:
- Avoiding late payments: Always ensure your creditors are paid on time. Even a single late payment can have a significant negative impact on your credit score.
- Low credit utilisation: Avoid maxing out business lines of credit, including credit cards.
- Avoid unnecessary credit enquiries: This can, rightly or wrongly, indicate to lenders that your business is struggling.
- Maintain your financial reputation: Maintain clean financial and public records, free of disputes or bankruptcies to establish and enhance your reputation.
- Diversify your credit: The responsible and strategic use of business credit cards can help you build a history of reliability in repayments.
How can ScotPac help you access the working capital you need?
The lending specialists at ScotPac are experienced working with businesses with poor or no credit histories. In fact, each year we fund $26.3 billion invoices and currently support over 9,300 businesses across Australia and New Zealand.
If your unpaid invoices and the customer base owing them are strong, and if you have clear invoice processes, it is possible to qualify your business for approval.
What are our minimum eligibility criteria?
It is important to note that there are still minimum eligibility criteria.
1. B2B
Your business must sell goods or services to other businesses – rather than directly to consumers – and do so on standard trade credit terms.
2. Trading History
Even start-ups are required to have operated for at least 12 months out of the same location, with consistent average invoicing and collections.
3. Creditworthy Debtors
As mentioned above, your customers will need to be reliable and trustworthy debtors.
4. Invoice Value
We provide up to 85% of the value of your submitted unpaid invoices however, we do require a minimum average of $10,000 in invoices per month for financing.
5. Invoice Type
In addition to the value, the type of invoices is important as well. Invoices must be raised for goods delivered or services already provided to other businesses rather than staged or advance invoices.
6. Australian
To be eligible, your business will need to operate and be registered within Australia, owned by Australia citizens or permanent residents, and issuing invoices in Australian dollars.
Need a hand accessing the Invoice Finance you need?
For over 35 years, ScotPac has been partnering with SMEs to find the right business finance solution to fuel their growth.
Whilst Invoice Finance is still accessible for businesses with no, limited or poor credit history it is important to understand what your enterprise is and isn’t eligible for. Our lending specialists are here to assist with exactly that.