Invoice finance gets slow cash flow in agribusiness hands faster

Surging fuel and power prices, expensive supply chain delays and rising interest rates are compounding the usual pressures for agribusinesses whose customers can legitimately take up to two or three months to pay their bills.

Despite busy trading conditions, the spiking cash flow challenges for farm supplies retailers, transport operators and fresh produce farmers have caught many off guard.

Businesses are being forced to find innovative ways to keep ahead of galloping inflation.

Not so surprisingly, one of the most popular overseas forms of business finance - short term invoice financing - is now gaining momentum among Australian small businesses.

"What is more surprising is that less than 10 per cent of eligible Australian businesses currently use some form of invoicing finance, whereas in the US, Europe and the UK it's standard practice for a significant portion of operators," said OptiPay chief executive officer, Angus Sedgwick.

OptiPay, which established locally in 2013, saw a 45pc jump in the number of regional businesses looking for its services to help address their cash flow needs last month.

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Invoice finance provides monthly funds to cover the value of goods and services which have been sold to a customer, but buyers' accounts are yet to be paid.

In OptiPay's case, the lender advances up to 80pc of an agribusiness' invoice value, ensuring that cash flow is immediately available to cover rising running costs and expansion activities.

The finance provider then collects the full value of the invoice when it is paid at the end of a 30- or 45-day invoice period, and hands over the final 20pc still owed to the business.

Depending on the size of the business and its total invoices, lenders in this market typically deduct about 1.5pc to 2.5pc of the invoice value at the end of the payment period to cover interest rates, administration fees and insurance over the loan.

On the NSW Mid North Coast, trucking business principal, Robert Hines, is one of invoice financing's recent converts.

He decided to make better use of his invoice "assets" when fuel costs ballooned just as his cash flow began recovering from wild fluctuations during the 2020 and 2021 pandemic lockdowns.

Mr Hines, who has 11 semi-trailers based at Kundabung, south of Kempsey, said for about four months he lost money on fuel costs because he couldn't adjust his freight charges and get paid fast enough to keep up with diesel price rises.

"We'd survived bushfires, flooding, and COVID lockdowns, but fuel increases and labour shortages have almost been the last straws to break the camel's back," he said.

OptiPay's Mr Sedgwick said fuel prices, which have climbed from less than $1 a litre in 2020 to regional petrol averaging $2.13/litre in July and about $1.83 this month, exemplified the sort of cost blowouts rural businesses may be covering while also carrying their customers' monthly accounts.

Fertiliser, livestock merchandise and steel used by machinery and livestock equipment makers were also typical of farm sector inputs now costing distributors well above trend.

At the same time, import bottlenecks and supply chain uncertainty meant many businesses must finance their own purchases for longer, including keeping more stock on hand to avoid being caught short by today's unusual supply and demand environment.

The Australian Tax Office has also ramped up demands for outstanding payments after allowing tax holidays for small businesses during COVID-19 lockdowns.

About 55,000 Australian businesses have post-lockdown quarterly tax instalments still owing.

"The commercial reality is that a business needs to have money coming in to operate week to week, but unless you can demand cash on delivery you are effectively lending that money, interest free, to your customers," Mr Sedgwick said.

"That's less cash for you to have on hand to cover your own purchase costs or growth plans.

"Why not convert your invoice asset into cash you can make use of."

He noted some small businesses with supply contracts with big customers, such as supermarkets or large manufacturers, were required to accept up to 90-day terms from the end of the billing month before payments were due.

OptiPay subsequently had several horticultural producers on its books during their harvest periods to help their cash flow when costs were high but payments were slow.

Meanwhile, for the many agricultural suppliers and service providers currently revelling in an exceptional period of demand for farm inputs and gear, Mr Sedgwick said recent years of upbeat agricultural earnings and big orders may mask deeper balance sheet problems, including the rising cost of servicing business debt.

"Inflation isn't about to stop and the cost of debt will continue to be much more significant than it was 12 or 18 months ago," he said.

"If for some reason demand for your product or services suddenly slows, you'll want to be making the most of those invoice earnings still coming in."

At Kempsey, where Hines' Refrigerated Transport's freight inventory includes local eggs, smallgoods and seafood to markets in Brisbane and Sydney and fresh produce along the coast and west to Tamworth, Mr Hines, said there was no doubt invoice financing had helped him get over the cost and cash flow hurdles he needed to deal with.

"It's helping us bring forward funds we need and trade our way through the problems we were worried about."

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