Waddle stories: Eclipse Organics

When Brett Monaghan made the decision to leave the world of high fashion photography, including the catwalks of Milan, Paris, and Madrid, he dreamed of moving back to Australia and starting his own organics business, away from the fast paced lifestyle.

“I wanted to play a role leading into the realm of really healthy food, that tastes just as great as it is healthy.” One of Brett’s first tasks was to ensure that he had the right technology, to bring efficiency and scalability, without disrupting growth.

Cloud accounting was the first obvious choice for Brett’s organic manufacturing and wholesale business, as he mapped out how each system might work together from accounting, inventory, fulfilment and, eventually, finance. With cloud software being the only logical way to establish business systems for growth, Eclipse Organics was born with the help of his business partner.

"Without the skills that both Jonny and I brought into this business, we would have found it nearly impossible. We have done most things ourselves. From Images and packaging design, to our internal file-maker production system. Without this, we would not have been able to play so soon." Brett - Managing Director, Eclipse Organics

Brett and his business partner, like most start-ups, need to wear many hats, so choosing systems that integrate with each other, and are accessible from any location, was critical.

Growth Challenges and Managing the Fixed Cost of Software

Establishing a baseline of solid cloud-based software, starting with Xero, allowed the business to utilise Add-ons, on-demand. Everything starts with financial data and, essentially, spiders out, allowing other software to integrate and facilitate two-way data exchanges, that eliminate most manual data entry.

By leveraging Xero and its comprehensive ecosystem, Brett has set himself up to allow scalable Add-ons, that do not come with the hefty price tag of enterprise solutions. These may not suit the cycle of growth he is currently going through. As the business grows, he only pays for what he needs, while maintaining the option to upgrade in the future, as he grows or needs to change. He will be able to scale-up to a higher-tier, without having to overhaul the entire system.

Cloud software has mostly been filling a huge cost gap for SMBs, between graduating from a micro business, to a larger turnover enterprise that requires large scale ERP software to run the operation. As a business grows, it can now take advantage of low-cost Add-ons and cloud-software, before making a huge leap up in costs.

With Growth Comes Payment Cycle Gaps

Brett’s business manufactures and wholesales premium organic products. When Eclipse Organics got started, payments were usually up-front. However, after a few trade shows, some large distributors began to take notice. Larger buyers demand payment terms that can drag invoice payment out to ninety days, in some cases. A typical problem is that all growth businesses face selling on B2B credit terms.

The opportunity to sell and distribute a product, or perform services, versus the time it takes to get paid, is something that cannot be avoided. More often than not, chasing payments or demanding quicker payment terms will fall on deaf ears.

A new problem has been revealed. Paying suppliers up-front, or even on the account, would eventually come to a crunch, as new invoicing increases and payment terms are stretching-out. As the gap widens, establishing Add-ons to automate payment collections, and tightening up credit terms, is the first logical step to bringing down the day’s average payment times.

Eclipse Organics

Plugging the Payment Gaps

With receivables and payables growing apart, including increased wage payments, he had to find a solution to fill the gap, getting sufficient liquidity into the business. This can service the growth potential the company is preparing to tackle. Brett found himself with a common problem- a good problem-that meant he was growing. As a result, he needed to get himself a solution that would both provide on-going working capital, while not impacting his business operation that could scale with his growth.

“Space, equipment and ingredients. They all come down to one thing. Funds and cash-flow.” Brett, Managing Director - Eclipse Organics

Brett identified the need to approach his bank and apply for an overdraft. He needed a true working capital option that fitted the cash-flow of his business. With timing constraints, waiting weeks or months to establish a line of credit would simply soak up too much time.

"Compounding this issue was the need to pledge property assets, in order to secure the loan."

“We are just too different for the banks to understand, and our high rate of growth just does not fit a standard overdraft or loan. We need to find a funding stream that would grow with us and be as fluid as we are.”

Brett knew he needed a credit-line that would grow with his sales, and was referred by the bank to a lending product called invoice financing. This would allow him to establish a line of credit against his unpaid receivables, which is not tied to the equity in his personal property assets. Invoice Financing (a type of debtor financing) is just one financing option that can mimic a traditional overdraft, except for one significant benefit - Invoice Financing doesn't require any fixed repayments or set loan terms.

As the business owner draws down funds against open invoices, customer payment automatically repays the credit line. This type of credit line is often referred to as a revolving line of credit. Each time new invoices are raised, they are financed and repaid, with the cycle continued each day, week or month.

This type of financing tool is a favourable working capital solution, which does not impact on the businesses operational cash-flow, to make regular set repayments that must be planned in advance. The issue he found with traditional invoice financing was the administration burden it might place on his back office. Traditional lenders would require Brett to use a separate system for logging invoices, including sending copies of the invoices and paperwork, such as delivering receipts to the finance company each time he needed to draw down funds.

Traditional lenders will also make contact with customers, and disclose that a financing arrangement is in place. What also became apparent was the complexity in the bookkeeping that this type of funding option would bring to the business. All of this added back-office load, coupled with the perceived expense of the actual finance. This has turned most business owners away from this type of product in the past.

Invoice Financing has Evolved into a Xero Add-on

By becoming a cloud-enabled business, Brett has inadvertently opened himself up to a new wave of lending options that he can access through the Add-on ecosystem. This integrates directly with his Xero account.

Invoice Financiers are now able to leverage Application Programming Interface (API) technology, to automate the entire lending process, removing the application stages and any paperwork that traditional lenders require. Business owners that use Xero can link their online account to the lender, opt-in for a two-way data exchange, which automates every aspect of the financing.

Financiers can make an assessment on the health of business from bookkeeping, customers spread, payment cycles, etc. All are helping to establish this within moments of connecting a new working capital facility. This fits the cash-flow cycle of the business. Business owners are now able to self-serve their funding needs and obtain real-time offers, based on their Xero data, instead of the traditional finance application process.

They do this by, simply, linking their cloud accounting software, something traditional banks are yet to provide. Ongoing administration is almost non-existent, thanks to the data sharing between Xero and the lenders dedicated lending software. SMBs can invoice for a job or delivery of product/s, and drawdown funds against new receivables (assets) the instant they get generated.

This new funding enables SMBs to identify, with pinpoint accuracy, the liquidity they require on a day-to-day basis. Instant access to funds against future customer payment helps facilitate payments to suppliers, wages, and expenses, without performing any further processes outside of their regular accounting duties. This is something that has never been seen before with a product, such as invoice financing.

The Importance of Fixing Cash-flow with Technology

Brett knew that he needed to get his business online from the very beginning, to allow his operation to scale with minimal disruption. Putting cloud accounting first was a pivotal step in branching out to additional business software Add-ons.

This has helped him reduce his fixed costs and deliver instant, efficient savings, that can be put back into developing better products and customer service. What he did not foresee was the evolution of business lending, specifically the vast changes in an age-old lending product, such as invoice financing.

This has significantly impacted his access to steady cash-flow. The cost saving provided through the possession of an integrated financing solution, which has minimal impact on his back office, just made sense to him.

Choosing an offline funding option was never a consideration for this tech-savvy entrepreneur.

This client story first appeared on XU Magazine (Print & Digital)

Team Waddle

Just a little pink duck, blogging about invoice finance

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