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Business Funding – Overdrafts and Factoring

Whether trying to get your business idea off the ground, weather the storm or expand your business, there are many funding options available.


Overdrafts are the most common way to fund your business when a little extra cash is needed. It is a short term option usually provided by your bank. To obtain a business overdraft you will need to have a good business plan and know how much you need to borrow over what period. A significant disadvantage to an overdraft is that they can be withdrawn at any time by the lender, meaning you would have to pay the full outstanding balance back immediately. Lenders also sometimes require you to give a personal guarantee that is tied to some security such as your car or house.

Invoice Financing

Invoice Financing is a type of factoring. Factoring is when lending is offered as an advance against the value of sales invoices. Not all businesses are eligible to apply from invoice financing as you will need approx $75,000 per annum invoiced sales to qualify.

Invoice Financing will cost a business in two ways: firstly a service fee will be applied at an agreed percentage of your turnover. Secondly, interest is charged on each invoice at a fixed percentage.

Invoice discounting

Another funding option involving your sales invoices is Invoice Discounting. This type of funding is limited to businesses that have an approximate turnover of $500,000 on a credit account basis.

Invoice Discounting works by a lender reviewing the business’ sales ledger. An offer is then made for approximately 80% of the value of the ledger and transferred to the business. Business have to pay a set fee for the service based on the sale ledger value as well as interest on the invoices until the customer pays the invoice in full. Customers pay the invoice amount directly to the invoice discounting lender.

Card Transactions Advances

Business Cash Advance is a type of factoring when cash advances are given based on a set percentage of your card receipts over a period. A big advantage to this is that repayments are collected through your card sales so in months where sales are low repayments are also low.

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February 24, 2011 um 7:14 am
Miscellaneous Finance
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