Your customers owe the business $900,000.
They’re good customers.
Most of them pay.
But they don’t pay today.
They pay in 30, 45 or 60 days.
Meanwhile, you’ve got wages on Thursday.
Suppliers at the end of the month.
Fuel accounts.
Rent.
Equipment repayments.
And another large order sitting there waiting to be accepted.
Someone suggests invoice finance.
Your first question should absolutely be:
“What’s it going to cost me?”
But that shouldn’t be your only question.
For a Dandenong transport, manufacturing, wholesale, labour-hire, construction or industrial business, the better question can be:
“What does having access to the money earlier allow the business to do?”
Because finance has a cost.
But waiting for cash can have a cost too.
Don’t Start by Pretending Finance Is Free
It isn’t.
Different debtor and invoice-finance facilities can include different combinations of:
interest or discount charges
facility fees
service fees
establishment fees
transaction charges
minimum fees
other costs
The terminology and pricing structures vary between providers.
So don’t compare facilities by looking at one advertised percentage.
We need to understand the total expected cost based on how the business will actually use the facility.
But Cost Needs Context
Imagine a Dandenong wholesaler.
The business can purchase $200,000 of additional stock.
That stock has already been ordered by established commercial customers.
The margin is attractive.
There’s just one problem.
The business doesn’t have $200,000 available because $700,000 is currently sitting in unpaid customer invoices.
If accessing working capital costs money but allows the business to complete profitable sales it otherwise couldn’t accept, the finance cost needs to be compared with the commercial opportunity.
Ask: What Happens if We Don’t Borrow?
This is one of my favourite questions when assessing business finance.
Don’t only ask:
“What happens if we take the finance?”
Ask:
“What happens if we don’t?”
Perhaps nothing.
Maybe the business can simply wait.
Excellent.
Then paying for finance may be unnecessary.
But perhaps without additional working capital the business has to:
decline a contract,
delay purchasing stock,
stop taking new orders,
delay hiring employees,
miss a supplier discount,
or use a much more expensive short-term funding option.
Now we have something to compare.
Example: The Profitable Order You Can’t Fund
Imagine the business receives a $300,000 order.
After direct costs, the expected gross profit is $75,000.
But fulfilling the order requires $180,000 of cash before the customer pays.
The business doesn’t have it.
If suitable working-capital finance allows the business to complete the order, the relevant question isn’t simply:
“How much does the finance cost?”
It’s:
“After the finance cost and all other expenses, is the order still sufficiently profitable and commercially worthwhile?”
That’s a much better calculation.
Don’t Finance Bad Work
This is equally important.
Suppose the $300,000 order only produces $10,000 of margin.
The business has to fund it for 60 days.
There are operational risks.
And the customer regularly pays late.
Finance might allow you to accept the work.
That doesn’t mean you should.
Finance can’t turn an unprofitable contract into a good contract.
Sometimes the Customer Is the Problem
A business owner might say:
“We need invoice finance because our customer pays in 60 days.”
Fine.
But why did you agree to 60-day terms?
Perhaps you had no choice.
Large customers often dictate commercial terms.
But perhaps the contract pricing should reflect the funding requirement.
A customer demanding long payment terms is effectively asking your business to finance part of their operating cycle.
That has value.
Payment Terms Have a Cost
Imagine two customers.
Customer A
Annual revenue: $1 million
Pays in 14 days
Customer B
Annual revenue: $1 million
Pays in 60 days
Assume everything else is equal.
Those customers do not have the same effect on cashflow.
Customer B requires the business to carry substantially more receivables.
If external finance is required to fund that difference, the financing cost becomes part of the economics of servicing Customer B.
Put the Funding Cost Into Your Pricing
This is especially relevant for:
transport,
construction,
labour hire,
wholesale,
manufacturing,
and contract services.
When quoting substantial commercial work, consider:
labour,
materials,
fuel,
equipment,
overheads,
margin,
and payment terms.
If the customer requires extended terms, don’t pretend the waiting period has no cost.
Example: Transport Contract
A Dandenong transport business is offered a major contract.
The customer wants 45-day payment terms.
The business needs another driver and will run significantly more kilometres.
Weekly additional costs are approximately:
Driver and employment costs: $2,500
Fuel and operating costs: $5,000
Other direct costs: $1,500
Total:
$9,000 per week.
Before meaningful customer receipts begin, the business could need tens of thousands of dollars simply to mobilise and operate the contract.
That’s before buying another truck.
The contract needs to produce enough margin to justify that cash requirement.
What if You Need the Truck Too?
Separate the two issues.
Perhaps the contract requires a $250,000 truck.
Don’t automatically use $250,000 of working capital to buy it.
Eligible trucks may potentially be financed through asset finance.
Then the working-capital facility can do the job it was designed for:
funding operations while customers haven’t paid.
Using the right facility for each requirement can matter.
Supplier Discounts Can Change the Calculation
Suppose a supplier offers:
3% discount for immediate payment.
The business normally buys $200,000 of stock.
A 3% discount equals:
$6,000.
If suitable working-capital finance allows the business to capture the discount, compare:
the discount gained
with
the cost of using the finance.
Depending on the numbers, paying for finance may potentially produce a net commercial benefit.
Do the calculation.
The Same Applies to Bulk Purchasing
Perhaps buying materials in larger quantities reduces unit cost.
Or freight is cheaper.
Or the supplier has a limited-time pricing arrangement.
Access to working capital can create purchasing power.
But don’t buy unnecessary stock simply because finance is available.
Cash tied up in slow-moving inventory creates another working-capital problem.
What About Paying Suppliers on Time?
There’s another cost that doesn’t always appear neatly in a spreadsheet.
Supplier relationships matter.
A business that’s constantly saying:
“We’ll pay you next week”
can eventually lose:
credit terms,
priority supply,
negotiating power,
or access to critical materials.
Appropriate working capital may help the business maintain supplier arrangements while waiting for customers to pay.
That can have real commercial value.
But Don’t Borrow Just to Hide Poor Management
There’s an important line here.
If the business can’t pay suppliers because:
customers pay slowly,
sales have grown,
and working capital hasn’t kept pace,
finance may potentially help.
If the business can’t pay suppliers because:
margins are inadequate,
expenses are uncontrolled,
customers aren’t being chased,
and the company consistently loses money,
borrowing more may simply delay the problem.
We need to distinguish the two.
Compare Debtor Finance With the Alternatives
Suppose the business needs $300,000.
Potential alternatives might include, depending on circumstances:
using cash reserves
extending supplier terms
owner funding
overdraft
revolving business finance
term business loan
property-secured business finance
debtor or invoice finance
Each has a cost.
And cash itself has an opportunity cost.
If using every dollar of business cash leaves the company with no buffer, that’s relevant too.
“But My Mortgage Rate Is Cheaper”
Sometimes a business owner considers using residential property equity because the interest rate may appear lower than commercial working-capital finance.
That can potentially be an option in some circumstances.
But don’t compare only the rates.
Consider:
security,
loan term,
total interest,
business purpose,
flexibility,
and the fact that you’re potentially putting property behind a business funding requirement.
A lower rate doesn’t automatically make it the best structure.
Don’t Turn 45-Day Working Capital Into 25-Year Debt Without Thinking
This deserves its own section.
The underlying cashflow problem might be:
customers pay 45 days after invoicing.
If you borrow against property over a very long term to solve that short cash cycle, understand what you’re doing.
The monthly repayment might look attractive.
But the debt can remain long after the invoices that created the original problem have been paid.
Match the finance term to the purpose where practical.
What About an Unsecured Business Loan?
Potentially.
Depending on the borrower and lender, unsecured business finance may be available.
It can sometimes provide relatively straightforward access to a fixed amount.
But compare:
repayment frequency,
term,
total cost,
available limit,
and how the facility behaves as the business grows.
A fixed loan and debtor-finance facility solve cashflow in different ways.
Weekly Repayments Matter
This is particularly important.
A business borrows $200,000 to improve cashflow.
Then a substantial weekly repayment begins.
If customers still pay in 45 days, the new repayment can create another drain on cash.
Don’t only ask:
“Can we get approved?”
Ask:
“What will this repayment do to the cashflow we’re trying to fix?”
Daily Repayments Need the Same Scrutiny
Some business-finance products can have frequent repayments.
That may suit certain businesses.
But if the original problem is insufficient daily cash, introducing a large daily repayment requires careful modelling.
Finance should improve the funding position, not merely move the pressure somewhere else.
Debtor Finance Can Behave Differently
Because debtor finance may be linked to eligible receivables, the structure can behave differently from a conventional amortising loan.
That doesn’t automatically make it cheaper.
It doesn’t automatically make it better.
But the relationship between:
sales,
receivables,
customer payments,
and facility availability
can potentially make it relevant to businesses with recurring debtor-driven cashflow requirements.
How Long Will You Use the Facility?
This affects the commercial assessment.
Do you need finance for:
three months?
one contract?
a seasonal peak?
ongoing growth?
the foreseeable future?
If the need is short-lived, certain establishment or minimum fees may become more significant.
If the facility will support several years of growth, other considerations may matter more.
How Much Will You Actually Use?
Suppose a lender approves:
$1 million.
Great.
But the business normally only needs:
$250,000.
Understand whether fees apply to:
the total limit,
the amount drawn,
eligible receivables,
turnover,
or another measure.
Different facilities charge differently.
The approved limit alone doesn’t tell you the cost.
What Happens as the Business Grows?
This is where we connect back to Alstonville.
Suppose the business needs:
$200,000 today.
Next year it may need:
$400,000.
The year after:
$600,000.
If the business is genuinely growing, consider whether the proposed facility can support that trajectory.
Repeatedly replacing finance every six months can create unnecessary work and cost.
What if You Don’t Use the Facility?
Ask.
Some facilities may have minimum fees or other charges.
Others may behave differently.
If you only expect occasional usage, the economics may be different from a business that will consistently use a large portion of the facility.
Facility selection needs to reflect expected behaviour.
Look at the Annual Cost
Don’t only look at one month’s invoice-finance fee.
Estimate the likely annual cost based on:
expected receivables,
average utilisation,
payment timing,
and all applicable charges.
Then compare that with the annual commercial benefit.
This gives a much clearer picture.
Then Look at Return on the Capital
Suppose the business expects to spend $40,000 a year on working-capital finance.
What does that $40,000 allow it to do?
If it enables an additional $500,000 of sustainable gross profit, that’s one discussion.
If it merely allows the business to continue losing money, that’s another.
Finance should have a job.
Don’t Forget the Owner’s Time
Constant cashflow emergencies have a cost too.
The owner spends hours:
moving money between accounts,
calling customers,
asking suppliers for extensions,
applying for short-term loans,
worrying about payroll.
An appropriate working-capital structure can potentially provide predictability.
That’s difficult to quantify, but it matters.
A Facility Should Create Capacity
The objective isn’t:
“Let’s borrow as much as possible.”
The objective is to give the business sufficient capacity to operate and grow without permanently running against the edge of its cash resources.
That may mean borrowing less.
It may mean borrowing more.
It may mean changing customer terms instead.
The answer comes from the numbers.
When Would I Be Cautious?
I’d want to investigate further if:
the debtor ledger is deteriorating,
most invoices are heavily overdue,
disputes are increasing,
the business is consistently loss-making,
the funding is being used to cover ongoing losses,
or there is no clear path to repayment or improved cash generation.
Finance isn’t a substitute for a viable business model.
When Might It Make Commercial Sense?
Potentially where:
the business is profitable,
customers are creditworthy,
receivables are eligible,
payment timing creates a genuine cashflow gap,
the business can use additional working capital productively,
and the commercial benefit reasonably justifies the facility cost.
That’s the conversation worth having.
Working Capital Finance Around Dandenong
Dandenong and Melbourne’s south-east are home to businesses operating across manufacturing, transport, logistics, wholesale, construction, labour hire and industrial services.
Many of those businesses don’t have a sales problem.
They have a timing problem.
They incur costs today.
They invoice customers.
Then they wait.
The bigger they become, the more money can sit in that waiting period.
Working-capital finance costs money.
But so can being unable to use the opportunities created by a growing business.
Want to Know Whether the Numbers Actually Stack Up?
Don’t ask us only:
“What’s the invoice-finance rate?”
Send Thrive Broking:
your aged debtor report, approximate monthly invoicing, customer payment terms, the amount of working capital required and what the additional cash would allow the business to do.
If there’s a new contract, stock purchase, supplier discount, truck, machinery purchase or expansion behind the requirement, include that too.
Then we can look at the finance in commercial context.
The question isn’t whether working capital has a cost. It does. The question is whether the value it creates for the business is greater than the cost of accessing it.