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TIM Finance: The power of invoice financing
With the expertise to find smarter ways to avoid the pitfalls of borrowing funds, TIM Finance has been helping fund businesses with growth capital since 2014 in a fairer, more flexible and affordable manner than a traditional business loan.
CEO Angus Sedgwick has overseen TIM Finance’s development into one of Australia’s fastest-growing providers of cashflow funding solutions for Australian businesses, utilising its expertise to structure funding solutions to optimise a business’ working capital cycle. Mr Sedgwick commenced the business in 2014, when it was then known as The Invoice Market, and it has now funded over $850m to over 400 Australian businesses in the last six and a half years. The Australian Business Executive spoke with Mr Sedgwick recently to learn about his background in the finance industry, the benefits of utilising various cashflow funding solutions, and the commitment TIM Finance has to educating Australian businesses on the power of invoice financing.
The Invoice Market
After completing a business degree at Sydney’s University of Technology, Mr Sedgwick embarked upon 25 years’ experience in the financial services industry, including 15 years with Policy Link, the largest traded policy broker in the world. This included 10 years living in Cape Town, South Africa and running Policy Link there.
“I then relocated back to Australia in the late 2000s and spent several years back in the financial planning space, completed my diploma in financial planning, so my background has always been in business services and financial related businesses.”
In 2014, Mr Sedgwick was approached by a former colleague to start the company, known then as The Invoice Market. It was originally a peer-to-peer funding platform, with the requisite capital coming from a panel of high net-worth investors.
“Over the couple of years I built it out,” Mr Sedgwick explains, “and we had about 28 different investors on the platform all providing capital. We restructured the business in 2017 to become a principal investor utilising our own balance-sheet funding, which entailed us securing our own funding lines from an investment bank and undergoing a private equity investment round”.
As a provider of cashflow funding solutions to Australian businesses, the company delivers solutions through a range of products, known as invoice finance (or debtor finance), trade finance, and supply chain finance, with each of these areas playing a different role in the eco system of a business.
Invoice finance is the process by which money is advanced to a client against unpaid invoices, helping them bring forward the cash that’s owed from customers for use in the business, immediately.
“We offer a whole range of invoice finance solutions. Whether that’s selective invoice finance, so a client can pick and choose which debtors they want to finance, through to the more traditional full ledger facility, where they upload their entire ledger and we advance against the entire value of their ledger, or otherwise known as unpaid receivables.”
Invoice finance is traditionally provided to growing businesses that have annual turnover of between $1.0m and $50m that require ongoing access to cash in or fulfil customer purchase orders and pay operating expenses as and when they fall due, without having the stress of waiting 30 to 60+ days for their customer to pay their outstanding invoices.
The trade finance option is made available to businesses that are turning over between $1.5m and $50m per year, with most of the company’s facilities taking in around $300k to $1m on a revolving basis.
Cashflow funding
There are many firms working in the same cashflow funding space as TIM Finance, with their role being essentially to help companies get finance by borrowing against unpaid invoices or from a loan facility. However, TIM Finance endeavours to do things differently from its competitors.
“We believe the key difference is our flexibility to provide solutions to clients that may not always fit inside the box,” Mr Sedgwick explains, “and to work with our clients to find solutions that work for them, rather than forcing a “one product fits all” onto them that may not necessarily meet their needs.”
Mr Sedgwick considers TIM Finance a dynamic business with the ability to make credit and funding decisions quickly, rather than a large bureaucracy such as banks or big industry players, which dictate to clients how things must be done.
“A business cannot grow and take on new clients without access to cash. So for many businesses, the largest asset on their balance sheet is their accounts receivable ledger, their unpaid invoices that are owed to them from their customers for goods and services that they’ve delivered on credit terms.”
This ledger is a non-performing asset, in the sense that it provides no return while its sitting there, because the customers are essentially using them as a bank for the credit period. The biggest impediment then is for businesses to be able to access the cash they need to keep pushing forward.
“I see it all the time, the businesses that have strong demand for their product or services but they’re unable to deliver on that demand due to the constrained cashflow. Yet they actually have the cash they need locked-up in their unpaid invoices, and that’s where invoice financing can really come into its own.”
There are three key business lessons that Mr Sedgwick has learned over the years that he considers to be most pertinent to the finance industry. The first is that businesses should always make sure they have a cashflow plan.
“A lot of business owners have marketing and sales plans, but most don’t have a cashflow plan detailing how the business will fund the new sales. Providing credit terms is a commercial requirement in today’s economy, so unless they’ve planned how they’re going to breach that timing gap, that business is almost guaranteed to fail.”
The second is about understanding the power of having cash available in the bank account. Mr Sedgwick believes that “cash is king”, and invoice finance is the best funding solution to achieve that for businesses making B2B sales on credit terms.
“[Number] three, by bringing forward a business’s cashflow, and hence having cash in the bank to pay creditors, they can negotiate discounts with the suppliers for early payment, rather than using their supply chain as a bank, as their customers are doing to them upstream. By being strategic in how you use your sales and the cash from those sales, you can turn invoice finance into its own profit centre.”
The problems of growing a business without access to cash have always been apparent, but Mr Sedgwick admits that the current economic climate created by the Covid-19 pandemic has bought this issue to light even more acutely.
“There’s a great demand for [PPE], and suddenly there’s a huge opportunity for businesses that have access into Chinese factories, and other manufacturers, to deliver that stock into Australia. But they need the money to pay the supplier, and we see that regularly. There’s opportunity, but there’s no cash.”
In terms of the cashflow funding industry in general, Mr Sedgwick admits that even without taking the pandemic into consideration, the sector has been at an interesting point in its history for a while.
“Throughout Europe, UK, and the US, cashflow finance, or more specifically invoice finance, is very much accepted as the number one form of business finance, for growing businesses. It’s very widely accepted as a normal business funding solution. Whereas, in Australia, more than half of business owners don’t even know what invoice finance is, or that it even exists and that it’s an available solution for them.”
The role of invoice finance companies such as TIM Finance is to educate the market about invoice finance, how to access it, and how it works for all businesses selling product and services on credit, at any stage in its lifecycle. This is an ongoing role that the company is playing in the industry.
“Some people have heard of ‘factoring’, for example, in Australia. There’s certainly a negative connotation often around the term ‘factoring’, because in the past the ‘factorer’, being the financier, might have been quite aggressive in the manner in which they managed the collections, and therefore it may have had an impact on that client’s business.”
TIM Finance does not engage in factoring work, but rather offers a funding solution in the form of invoice finance that leaves all the management of debtors and the payments of their invoices to the client themselves, which is the way Mr Sedgwick believes it works well.
“My belief is that our client is our client, and their customers are their clients,” he says. “and they should continue to manage that relationship. So the education of business owners around invoice finance is one of the key things, and helping them to learn about it and understand the power of it.”
Mr Sedgwick is aware, however, that in this information-saturated era it can be increasingly difficult for a firm like TIM Finance to get the message out there, and to differentiate it from all the other messages being passed around.
“That’s the challenge that we face. If you look across the whole debtor or invoice finance industry, is that with all the players that are in the space, there is less than 7,000 SMEs across the whole of Australia that actually utilise these funding solutions, so it is still a massive untapped market.”
With an ongoing commitment to educating businesses on cashflow funding options, TIM Finance is perfectly placed to come out of the current economic difficulties in good shape. Find out more about TIM Finance by visiting www.timfinance.com.au.
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