|High cost, fees and advance rates?|
Earlytrade has no fees, no recourse, the cost is determined by you as you choose the discount rate you think is fair and as a supplier who needs cash flow, you will be advanced 100% of your invoices net of discount, within as little as 24 hours. With invoice factoring, the interest rate and fees will vary depending on the factor company, the type of factoring, and your situation but effective interest rates can be anywhere from 20-35%. Should you want to get a lower rate, you may have to provide recourse — a guarantee to the factor that you will cover any losses if your customer does not pay the invoice amount. Also, with recourse factoring, the factor will pay you a percentage of the invoice value upfront (typically 70-90%) and then the balance of the invoice minus fees and interest after it collects from your customer. The rate is based on your creditworthiness and if your customer does not pay, you are liable for the amount.
|Do you remain in control of your invoices and customer relationship?|
With Earlytrade you retain ownership of your invoices and customer relationships. There is no third party involved in the collection or payment of your invoices - you are paid the exact same way by your customer, only sooner. Earlytrade actually improves your relationship with your customer because there is now no need to have an awkward conversation about chasing them for payment - you can do all this quickly and anonymously by logging onto your personalised Earlytrade dashboard. With invoice factoring, your invoices are sold to a third party either fully or in part. The third party then collects on the receivable directly from your customers. This can be a red flag to your customers who may worry you are in financial trouble. Also, in order to get a lower interest rate, the factor company may require a minimum number of receivables to be funded, meaning you will have to commit your business to a number of months or years of invoice factoring.
|Complex application process?|
Earlytrade has no application process, you don't need a legal review or approval - you simply access early payment (cash flow) on-demand whenever you want it. Invoice factoring has a complex application process that involves long legal documents and contracts, a lengthy approval process and some factoring requires underwriting which means you must agree to repay to repay the factor company if your customer doesn't and transfer the rights of ownership of your invoices to them.
|Earlytrade||Secured Bank Loans|
|Personal assets at risk?|
Earlytrade requires no security to get cash flow into your business. Secured business lending in Australia is basically mortgage lending since the only way you can get a loan at a reasonable rate is by securing it with a second residential mortgage on your property or a director's guarantee (which is essentially the same thing). If your business fails to repay then you can lose your house.
|Complicated approval process and ongoing reporting requirements?|
Earlytrade has no application process and no ongoing reporting requirements. After logging on, you can be paid in one click and in as little as 24 hours. Approval for a secured loan requires you have good financial statements, reporting systems, and a good credit history. It is becoming increasingly difficult to qualify for approval as a small or even medium business because banks are becoming more conservative. A secured line of credit may have a revolving credit limit that fluctuates based on your ongoing accounts receivable balances. The lender will monitor and audit your company on an ongoing basis.
|Increases your debt?|
Earlytrade grows your business without increasing your debt because it's not a loan - it's simply early payment. You can use Earlytrade during temporary or seasonal peaks in the year without adding to your debt and many businesses use it as a low cost way of paying down other higher cost debt. Borrowing from a bank not only requires collateral and guarantees but can also include additional fees such as an audit fee. The interest expense hits your income statement and your borrowing always has a limit.
|Earlytrade||Unsecured Bank Overdrafts|
|Is it debt?|
Earlytrade is not a loan. It's simply early payment from your customer. Third-party lenders require risk-based underwriting, complicated paperwork, higher rates, and recurring fees. Lending requires collateral and guarantees which put your business at significant financial risk.
Businesses on Earlytrade are seeing savings of up to 41.6% when compared to big four bank overdrafts. The reason for this is because it is becoming more expensive to be a bank with regulation increasing while they have higher capital requirements. Earlytrade is a new form of funding that is between just you and your customer - no third party lending necessary! The interest rates with unsecured bank overdrafts (or lines of credit) are based on your businesses ability to repay - this is called credit based underwriting. This often means the bank will apply what's known as a 'credit margin' (usually 1-5% more) on top of your base rate. Overdrafts also have other recurring fees including non-use fees if you do not borrow money, application fees and quarterly balance fees of up to 1-3% are standard.
Most businesses who use Earlytrade think of it as the first line of defence if they need cash flow. They will use Earlytrade first and then their bank overdraft second, should they still need to. This is because most of them would prefer not to borrow if they don't have to. It's not easy borrowing money from banks these days. You have to meet strict approval criteria that can take months and your business needs to have solid financial ratios in order to maximise the funds you need. Do you know that most bank contracts say the bank reserves the right to redefine your debt covenants ratios at their discretion? You also must maintain mandatory reporting requirements. Banks have traditionally been very rigid with the terms of their contracts meaning you get very restrictive terms and it costs a lot to pay a lawyer to do a legal review of the contract.
|Earlytrade||Supply Chain Finance|
|Any business can use it?|
Earlytrade is personalised to each business, no matter how small. You may not have access to supply chain finance programs if you are not a Tier 1 supplier with significant accounts receivable. SCF may also be a less accessible option for small suppliers due to the cost to the bank for compliance and onboarding of each supplier.
Earlytrade is on-demand and offers 'pull pricing' where the suppliers set their own rates and only participate when they are happy with the price. SCF programs operate 'push pricing' where they mandate the prices on the suppliers. And while the prices with SCF are often low due to the fact they base it on the creditworthiness of the customer, SCF often requires all of your invoices to be financed, with no choice for you.
|Extended payment terms?|
Earlytrade is an ethical payment solution and works with companies that have payment terms as low as 7-14 days, in some instances. SCF programs often mandate the corporate customers to extend their payment terms with suppliers in order to drive adoption of the program. This typically lengthens payment terms from 30 days to 60 days or 90 days in some cases. This puts huge strain on the suppliers and, in the year it happens, impacts them as if they did not receive payment for an entire month that financial year. It also puts suppliers at risk of default which put further strain on supply chain health.