The concept encapsulated by a range of new Australian start-ups, which enables employees to access their wages in advance, could be a way for labour hire businesses to fast track their growth.
Australia’s economy is poised for a recovery in the wake of the Covid-19 crisis, and many businesses will be turning their attention to how they can optimise that growth by responding rapidly to market demand. This is particularly the case in the labour hire space; as the job market gathers pace, labour hire players are getting busy.
Cashflow is the lifeblood of SMEs, but it’s also one of their biggest pain points, especially in a labour hire business trying to grow. Many find it hard to secure funding from traditional banks, which lack a sufficiently flexible structure to finance businesses without a strong asset base (e.g. property), or from alternative lenders who typically won’t fund loans above a certain amount.
Some forms of alternative finance, such as traditional invoice finance, have long been the recourse for such businesses, enabling them to free up cash for growth by borrowing against unpaid debt to fund expansion or invest in new people, solutions, or acquisitions.
In recent years, a new tech-enabled entrant into the Australian market has cut out some of the glitches entailed in traditional invoice finance, offering an agile way for businesses to prime their operations for growth.
TP24 is a fintech company backed by Credit Suisse that is disrupting the invoice finance offerings for SMEs in Australia. The company, which uses automated credit technology to calculate risk in real-time, is even attracting comparisons with other, larger fintech brands.
TP24 has developed a unique solution for SMEs and is gaining traction in the labour hire industry by enabling companies to access flexible funding for growth. It is similar to invoice finance, but with a few key differences. Its more flexible ‘Line of Credit’ concept is backed by a structure that securitises and uses insurance to underwrite the account receivables of SMEs.
This removes the risk for funders and enables TP24 to offer competitive, transparent rates. This is in contrast to the hidden fees of many invoice finance providers. Just a few examples include purchase fees, admin fees, management fees, and recourse fees. Some providers also lock businesses in for 24-36 months.
TP24’s Line of Credit also involves fewer restrictions and controls than traditional invoice finance; unlike traditional invoice finance, TP24 does not take control of the client’s bank account/cash.
Instead, it is structured like an overdraft, meaning there’s no requirement to pay it off within a set time frame.
To sum up, the TP24 LOC’s point of difference, let’s look at the problem it’s designed to solve: currently, the contractors sourced by labour hire companies typically require payment sooner than the client they are placed with can pay. Ironically, this is particularly the case when the client is a blue chip (ASX200 company).
This means that the contractor either has to wait until the blue chip pays, or the labour hire business bridges the gap, which has limitations.
TP24 LOC empowers the labour hire business to ‘bridge the gap’ with the additional benefit of potentially being able to charge the contractor a higher rate for doing so, capturing greater margin and more often than not recouping the cost of the finance.
Let’s say a labour hire business invoices a blue chip client for $500k. The TP24 LOC allows the labour hire business to receive up to 80% of the value of that invoice upfront ($400k) In the meantime, the labour hire business has been able to utilise the $400k to make payments and generate more income, which can then be used to invest for growth.
In a business, every day of delayed payment from a customer represents an opportunity cost, in other words, a strategic investment or purchase for growth that could not be made because of stifled liquidity.
TP24’s automated credit technology assesses SME supply chain data and calculates risk down to individual invoices in real time, making it fast, agile, and accurate. For labour hire SMEs looking to capitalise on Australia’s coming recovery, disruptor products such as TP24 LOC can align them with growing demand and enable them to make growth critical decisions in line with a buoyant market.
Read our case study on how we saved a labour hire company 13% on their working capital funding costs.
TP24 offers a unique solution for SMEs in Australia. We provide a line of credit working in harmony with your software. Secure, flexible credit with limited admin. Get in touch today firstname.lastname@example.org.