Mind the gap: Short term funding for labour based businesses

When your business is small and starting out, it’s not unusual to encounter a funding gap – particularly if you operate in a labour based business. If you’re trying to balance the books and the numbers don’t add up, consider invoice funding as a solution. Here are our tips on how it can best support your business.

Know your cash flow

In an ideal world, all pay cycles would align – but let’s be realistic, that just doesn’t happen. In the labour industry you become an expert at juggling the flow of cash out (wages) and in (client payments). You know that it can take an extended time to receive payment from your clients, but your staff may need to be paid weekly, and often more frequently than client invoices are due. Know your payments cycle intimately.

Plan ahead and be prepared

One of the most effective things we suggest to support your business is to invest in a little forward planning.  If possible (and we know not all contracts are long term) plan ahead and build a cash flow projection that will allow you to predict if you are going to have a gap in funds. It may be a large contract that would produce a short-term funding issue to get underway; or perhaps an increase in staff wages before increasing client contracts…Gap identified? Here’s what to do next.

Build a relationship: pre-approve your provider

Work in advance to choose your preferred form of short term finance and your preferred provider. There are different options available, you just need to work out how to maximise flexibility to what your business requires and minimise the cost.

A popular solution is invoice based funding. This is where you effectively ‘sell’ your invoices to your financial provider and receive the funds when you need them, in advance of the invoices being paid by your client.  This works really well for labour based businesses as it bridges the gap between paying staff and client invoices coming in. You have minimum time in debt and therefore manageable impact in terms of interest and fees.

How do you make it work for you?

When you have chosen your preferred provider, meet in advance of needing the finance. A good provider will want to build a relationship with both you and your customers and understand the way that you work. This will give them confidence in lending and make the whole process a lot smoother and less stressful.

A little forward planning can mean that when you hit that funding gap you know who to call. You can have the right information and documentation in hand. And both you and your customers can be happy that your business will keep operating successfully.

Cash flow challenges shouldn’t get in the way of a good business. If you’re growing and you have a good relationship with your clients, success should not be put at risk because the pay cycles of your staff and your invoice periods don’t align. So why not take the time to explore your finance options today?

About the Author

Ian Leslie is a Director of FIFO Capital. Operating nationally, FIFO Capital is a leading provider of single invoice finance solutions. For more information please contact ian.leslie@fifocapital.com or 0422 228 618.