New Zealand businesses often face a working capital dilemma: payroll is due before your customers have paid their invoices. This is not a shortfall in sales or profit, but rather misaligned timing.
After all, your business has already earned the revenue. It is simply waiting in your customer’s to be paid queue. Unfortunately, your fixed payroll schedule does not wait for your accounts receivable process to play out. Invoice Finance is built for this gap, because it gives you advance access to cash against invoices you have already raised. It is money you are already owed, and you can use it to pay wages before the customer’s payment date arrives.
Learn more about how ScotPac’s Invoice Finance is helping NZ businesses across the country.
How is Payroll Impacted When Customer Payments Are Late?
Payroll is one of the costs of business that never moves.
Your team works the set period of time and they deserve to get paid at the end of it. On the other hand, your customer payments, while held to standard payment terms, ultimately run according to your customer’s schedule.
This is a challenge for growing, labour heavy New Zealand businesses. Wages are fixed and predictable, but incoming cash is not always. The gap between doing the job and getting paid can create real pressure, and a slow debtor can make that pressure worse.
What are Standard NZ Payment Terms?
In New Zealand, 30 days is considered a standard credit period, though it can vary depending on the industry, the business and the agreement in place. In practice, businesses are commonly waiting 30, 60 or 90 days for customers to pay.
If your business runs a weekly or fortnightly payroll cycle, that means several outflows of cash before the matching inflow arrives. Every new contract or opportunity can widen the gap further. Remember, this is a challenge for growing, successful and profitable businesses, not failing ones.
The gap also affects some sectors harder than others. Labour and service heavy businesses, in industries such as recruitment, labour hire, transport, construction, trades and professional services, carry high wage costs relative to the size of the monthly invoice. It means just one or two slow paying customers can put real strain on cash flow.
How to Reduce the Gap Between Cash Coming In and Payroll?
There are a few ways in which you can reduce the timing mismatch between receiving payment and having to fund payroll.
1. Improve your invoicing process
It is always recommended that you issue an invoice soon after a job is complete. Try to avoid batching invoices at the end of the month, so that your incoming payments are spread out.
2. Follow up promptly
Always follow up outstanding invoices early. Do not just wait until they are overdue. Even a friendly call or email a few days before the due date can prompt faster payment.
3. Stagger supplier payments
If possible, stagger your supplier payments. Always keep to your terms, so that you maintain strong supplier relationships.
4. Review your payroll
Review your payroll cycle to see whether it can be better aligned with your typical invoicing process.
None of the strategies above change the underlying timing problem. If your business is growing and the pressure on cash flow is increasing, you may need Invoice Finance.
How Does Invoice Finance Close the Gap Between Payroll and Customer Payments?
Invoice Finance is a funding solution built for the timing mismatch between customer payments and payroll. Instead of waiting out a 30, 60 or 90 days payment cycle, you can access working capital secured against your invoices as soon as you raise and issue them.
- Deliver the goods or services.
- Issue your invoice.
- Submit your invoice to ScotPac for funding.
- Access up to 80% of the invoice value, often within 24 hours.
- Meet payroll on your schedule.
- Your customer pays their invoice on their schedule.
- The remaining balance is released, less applicable fees.
What are the benefits of Invoice Finance?
Invoice Finance is a flexible working capital solution that helps you cover wages when your customers have not yet paid.
But what makes it such a good solution compared with other funding tools, such as a business overdraft?
- Facility limits are not fixed in the way a lump sum loan is. They can grow in line with your sales ledger, subject to eligibility and facility terms.
- Funds can be available in as little as 24 hours after approval.
- No property security is required, because your unpaid invoices are used as collateral.
- ScotPac can arrange facilities up to NZD $150 million, so the structure suits businesses at a range of stages.
To find out more about the benefits of this funding solution, visit the Invoice Finance product page today.
