Finance based on your future not your past
- Posted by Duografik
- On May 15, 2020
- 0 Comments
- cashflow, cashflow finance, customer invoice finance, debtor finance, Small business
Many businesses are applying for finance from banks and other similar institutions using the traditional methods. This means the bank will ask for records covering your last two years.
You must ensure all your documentation is up to date, that your tax has been lodged and that you know what tax debt you owe and more. A lot of paperwork, which we all know needs to be done.
The problem is that what banks are after more than anything is historical data. Many businesses say they have always found it strange that when they visit their accountant (perhaps once a year) they are then told what they should have done 18 months ago. Or what they should have done six months ago or three months ago. How useful is this really? Not only that, but when you visit your accountant one of the biggest things you are trying to do is reduce the tax you must pay. This involves increasing your expenses and reducing your profit, even if this is only through non liquid means like depreciation. You end up paying less tax, which is great, but now when you need to get that bank loan your figures don’t look as good.
The COVID-19 crisis has shown how misguided this process can be, even for banks. Just because you had a good year last year does not mean this will continue. So now the banks are asking what about the future? How will you survive?
Most entrepreneurial businesses are always thinking about their present and their future. They are always thinking positively and trying to bring about the outcome they wish. The finance process which matches this is customer invoice finance. That is, finance backed by your current sales, not based on two years of history. It is only the now and the future that count and that is what customer invoice finance is all about.
As an example, you have just received a new contract, you have big orders in the system but need finance to be able to fill them, then this is what counts to the business. Getting some great orders and then having to go back over two years of history for the bank is nonsensical. It’s about the future not about the past.
When you review the cashflow cycle here you can see quite clearly how customer invoice finance can be used for growth. Not just now but well into the future. COVID-19 has highlighted how some of the old finance methods are really limited in how they work. Cashflow finance or customer invoice finance matches a fast-moving environment where you have to be light on your feet.
AddCash is focused on your future, not your past. And it will always be the case.