Invoice Finance Alternative Funding

Consider a range of alternatives to invoice financing for your business in this handy guide.

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, updated on September 4th, 2023       

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Invoice financing is an alternative form of business loan which has many advantages. If, for one reason or another, your business doesn’t have access to invoice finance, what other business loan options are there which offer similar benefits? Explore the alternatives to invoice finance funding with Savvy today.

If my business can't get invoice financing, what alternative funding is available?

There are a number of advantages to invoice funding that make it appealing as a form of business finance. To find a good alternative on the Australian loan market, you need to establish what aspects of invoice finance made it desirable. Some of the more appealing factors are:

  • No requirement for a deposit or collateral
  • Little dependence on your business’ credit score
  • No ongoing repayments to make
  • Avoids a period of shortfall while an invoice remains unpaid

If the main appeal for your business is not requiring any collateral or deposit, and leniency with credit rating, then you might find an unsecured loan to be a good alternative. Unsecured loans are available from a wide variety of lenders in Australia, and just like invoice financing they require no asset for security or money for a deposit. They’re also one of the most lenient types of loan when it comes to credit rating, and are available to businesses with a range of credit scores. There are also bad credit unsecured loans tailored specifically for businesses with troubled credit records, and these will generally still be an option even if your credit score has ruled you out of most conventional loans.

If an unsecured business loan looks like being the right option for your business, Savvy’s a great place to start the hunt. You can quickly compare unsecured loans from a range of Australia’s top lenders, and select the one that’s right for your business.

If the main appeal of invoice finance is the lack of ongoing repayments, you might consider a merchant cash advance. While there are repayments required for a merchant cash advance, the repayments are not required as a set monthly lump sum. Rather, the lender takes a small percentage of your business cash flow until the required loan amount (established at setup) is repaid. This means that if your cash flow drops off, your repayments do as well – lessening the financial impact and avoiding the chance of repayments proving too expensive when your cash flow slows.

If the main advantage of invoice finance was closing the financial gap between services being rendered and an invoice being paid, then it’s worth considering some form of business credit – such as a business overdraft. These allow access to supporting business finance as you need it, and can be repaid at any time – meaning you have access to easy funds which can be immediately repaid once the invoice is settled.

How do I compare invoice financing alternatives and find the best funding option for my business?

There are a few questions to ask as you’re weighing up options for invoice finance alternatives.

First, the question that’s front and centre for most businesses when it comes to loan funding is “What is this actually going to cost my business?” You need to ask some questions – and possibly do a few sums – to get a sense of what you’ll actually pay for a loan, and then you’ll need to weigh that against the advantages. For example, on the Australian market an Unsecured loan is in a similar ballpark to invoice finance, while a merchant cash advance is generally a lot more expensive.

Second, it’s worth weighing up which loan alternatives your business is in a position to make use of. For example, merchant cash advances are normally restricted to businesses that make heavy use of EFTPOS and credit, as the loan repayments are all deducted automatically from your electronic transactions. Thus, it’s not a good option for businesses which deal heavily in cash, or don’t have a regular, steady cash flow.

Thirdly, it’s worth asking if the loan option you’re considering has any potential risks to take into account. For example, a business overdraft has substantial interest, and overusing it can damage your credit. And a merchant cash advance normally needs to be settled within 12 months of the initial loan, with any remaining balance due on that date – potentially leaving you with a big bill if cash flow for your business has been slow.

What are the advantages of an invoice finance alternative?

Frequently asked questions about invoice finance alternatives

Are there invoice finance alternatives that still handle debt collection?

In Australia there aren’t really any alternative lender-based finance options that include debt collection like invoice financing does. But there’s nothing to stop your business looking into a private debt collection agency to handle the matter.

Is there a funding alternative to invoice finance that offers a better interest rate?

Unsecured loans can potentially be in a similar price range (or cheaper) to invoice finance. Many other options – including credit and merchant cash advances – are a fair bit costlier.

Are there alternatives that provide faster access to funding than invoice finance?

Although invoice finance is quite quick to turn around when it comes to seeing cash in your account, Unsecured loans are equally quick, and a merchant cash advance can be even quicker. Credit is sometimes a little more involved to get set up, but once it’s established you can access those funds instantly via electronic transfer.

How long do I have to pay off some of these invoice finance alternatives?

Business credit can be paid off at any time (long or short term), but you pay significant interest while the money is still owing. An unsecured loan can have loan terms up to 5 years or more. But a merchant cash advance normally needs to be settled within 12 months.

Is there another way I can still make outstanding invoices work to my advantage?

Not in the same way, but when you’re applying for a business loan the lender will normally want to see evidence of solid cash flow for your business. A stack of invoices – paid or not – is proof you’re in demand.

Are there funding alternatives that can offer more money that invoice finance?

Invoice financing can potentially offer quite a substantial amount of money – up to $500,000 or more. The main alternatives might struggle to offer that much – the closest is probably an Unsecured loan, which can potentially offer up to $300,000 or so to a good customer with spotless credit. But on the other hand, very few businesses actually have access to $500,000 worth of currently unpaid invoices, meaning some of the alternative finance options could potentially offer more, because they’re not bound to existing debts.

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