The new Budget requires certain businesses to pay tax
monthly rather than quarterly. This means some businesses may have
to pay tax before they receive payment from their customers,
creating cashflow issues.
This can be particularly problematic for growing businesses
already struggling to pay creditors because of payment delays by
their own clients. One solution to such cashflow issues is
receivables financings (including invoice discounting).
Receivables financings can allow businesses to meet such tax
payment obligations as well as freeing up cash for, among other
things, working capital, capital expenditure and acquisition
purposes and for generally continuing to develop their business
without having to wait for debtors to pay invoices. A receivables
financing may be particularly relevant where an overdraft facility
would otherwise be inadequate. It can be structured to allow
increased finance to be made available in line with increased sales
without the original terms having to be amended.
Such financings are particularly relevant where a business is
required to pay its suppliers upfront or meet other payment
The business can then repay its financier as and when the
debtors pay their invoices.
Depending on the arrangement reached with the financier, clients
of the business do not need to be informed of the financing and
security arrangements (as opposed to more traditional
"factoring" arrangements), so those clients continue to
liaise with their usual contact at the business rather than a
representative of the financier. Typical facility limits can be up
to 70 - 85% of the receivables or invoices financed and there are a
number of financiers who offer to make funding available as quickly
as the next working day.
The financing can be non-recourse or full recourse with the
former prohibiting the financier from seeking recourse against the
business if a client fails to pay an invoice. Further, the security
provided to the financier can be the usual all assets security or
it can be limited to security only over those receivables that are
financed (although this is less common for mid-tier businesses). A
number of factors will determine which is the most appropriate and
it is worth noting that these may also impact on the pricing of the
One additional advantage of a receivables financing as opposed
to a corporate cash advance facility, for businesses with assets in
New South Wales, is that it might not attract New South Wales
mortgage duty although we recommend that specific stamp duty advice
is taken on a case by case basis.
If receivables financing is something that might be of interest
to your business, we have a number of contacts both in Australia
and overseas who make such financing available. Please feel free to
contact us if an introduction would be helpful.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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