The situation usually picks the facility.
Businesses rarely start by choosing between invoice finance and a term loan. They start with a problem, which is usually a payroll run against monthly billing, a tax date landing in a quiet month, a season to get through, stock to buy or a customer that pays when it suits them. These five pages start there instead.
Covering payroll
Payroll is the most rigid outgoing a business has and the least forgiving of a timing mismatch. The gap it opens is structural rather than occasional, which changes which facility fits it.
Read onPaying GST or provisional tax
Tax dates are fixed and trading is not. The gap is entirely predictable, which is what makes it the most avoidable of the working capital problems on this site and one of the most common.
Read onA seasonal cash-flow gap
A seasonal business knows roughly when it will be short and roughly by how much. That foreknowledge is worth a great deal, and it is routinely wasted by treating the trough as a surprise every year.
Read onBuying stock
Every dollar of inventory is a dollar the business cannot spend, and the cost of holding it is considerably more than the interest on funding it.
Read onBridging a late-paying debtor
A business on 30-day terms collecting at 55 is running a 55-day business. The gap between the two is funded by somebody, and it is almost always the supplier.
Read onWhere to start
Five situations, and why the situation matters.
Businesses rarely arrive having chosen a facility. They arrive with a situation, and the situation is a better guide to the right instrument than any comparison of rates, because it determines whether the gap recurs and what the business has to offer against it.
Payroll and late-paying debtors are both recurring and both point at receivables funding, because a business with that shape ordinarily has a ledger and few assets. Seasonality is recurring on a longer rhythm and points at a revolving facility or, where takings are on cards, at an advance that repays itself faster in the good weeks.
Tax and stock are different. A tax date is a one-off, dated, sized obligation and a term facility fits it, although the Inland Revenue conversation should come first. A stock purchase is a buying decision as much as a funding one, and the funding question is the easier half of it.
Each page sets out what makes that situation different, what it costs to fund, what can be done about the cause rather than the symptom, and which of the eight facilities actually fits.
The common thread
Timing problems and margin problems look identical from inside.
Every page in this tier makes the same distinction, because it is the one that determines whether funding helps. A timing problem is a profitable business waiting for money it has earned. Funding it buys the wait, the cost comes out of a margin that exists, and the business gets larger by doing it.
A margin problem is a business whose work does not cover its cost. Funding it allows the business to keep operating at scale for longer, and the eventual shortfall is bigger for the delay. The facility is not the problem and it is also not the solution.
The test is the same in every case: cost a job or a contract fully, including the funding cost of the gap, and set it against what it pays. A business that cannot answer that is guessing about which situation it is in, and the two call for opposite responses.
FAQ
Funding decisions, common questions
Why does growth cause a cash shortage?
Because the capital tied up inside the operating cycle scales with turnover. Growing thirty percent adds roughly thirty percent to what is tied up in stock and receivables, and that money is needed before the additional revenue arrives.
Is it normal to fund working capital?
Entirely. Almost every business selling on credit terms or holding stock runs a gap, and funding it is ordinary commercial practice rather than a sign of difficulty. What matters is whether the instrument matches the shape of the gap.
How do I know if the problem is timing or margin?
By costing a contract or a job fully, including the wage cost of delivery and the funding cost of the gap, and setting that against what it pays. Where the work is profitable it is timing; where it is not, funding buys time at a cost.
Should I fix the cause or fund the gap?
Both, in that order of importance and the reverse order of speed. Funding is available this month and the operational fixes take a quarter, so doing both is commonly the answer, and a business that only funds keeps paying for a gap it could have shrunk.
What is the cheapest fix in most businesses?
Invoicing promptly and correctly. A large share of slow payment traces to invoices issued late or rejected by a customer’s process rather than to customers choosing to pay late, and neither costs anything to fix.
Can suppliers be part of the answer?
Frequently. Extended terms from a supplier are the cheapest funding available and are asked for less often than they are granted, particularly by a customer with a record of paying on time.
Does a facility make a business look weak to customers?
Only where the arrangement is disclosed, and even then it depends heavily on the sector. In construction, transport, labour hire and recruitment, notices of assignment are routine and carry very little signal.
What if the same gap keeps recurring?
Then the instrument matters more than the price. A recurring gap needs a facility that is there every cycle, and repeatedly taking term facilities for it is the pattern that turns a timing problem into a debt problem.