Debtor (cashflow) finance: what is it and how can it help you?

There are a lot of businesses, from small to large, that invoice for their goods and/or services on 30+ days settlement terms. As you can imagine, businesses that offer this may be operating with rather low reserve capital at any one time, particularly if waiting for several sizeable payments.

Now, you might think that lenders will run to the hills when faced with a business like this that is interested in financing, but you’d be mistaken - this is where debtor finance comes in.

What is debtor finance?

Put simply, debtor finance is when a business borrows a percentage of the invoices that haven’t been paid yet. So instead of having to wait 30, 60 or even 90 days for customers to make their payments, lenders will (for a fee) allow you to access a certain percentage of your outstanding invoices right away.

The two main types of debtor finance are:

Invoice factoring

Also known as debt factoring, this is when you essentially ‘sell’ a lender your unpaid invoices and they provide a percentage of the total owing (usually 80%) as a line of credit until they’re paid - at which time you receive the remaining percentage.

As the finance provider takes on the responsibilities of collecting payments and payment processing, invoice factoring is generally more suited for small to medium businesses that may not have the time to chase late payments.

It’s important to remember, though, that because the finance provider is the one following up your customers for payment, they’ll be made aware that you’re undertaking debtor finance.

Invoice discounting

Like factoring, invoice discounting also allows you to take out a line of credit against your unpaid invoices. Again, you ‘sell’ your unpaid extended credit term invoices to a lender at a discounted rate (normally around 85%) and once they’re settled you get the rest.

More suited to larger businesses that have their own accounting departments, invoice discounting leaves the onus on the business to chase and process payments which means it’s very unlikely that your customers will find out about your debtor financing.

To be eligible for debtor finance, invoices must be business-to-business sales on credit terms, and all eligible invoices must be for goods and services that have been delivered in full. Invoices to private (non-business) customers, or invoices on non-credit (for example, COD) terms are unfortunately not eligible.

How can my business benefit?

Whether the growth of your business is suffering as a result of reduced cashflow or you’re in desperate need of a new work vehicle or essential commercial equipment, debtor finance may well be the perfect solution for you.

There are plenty of lenders out there that understand no two businesses are the same, and our 20+ years in the finance industry means we have access to all of them!

Speak with us today about debtor finance solutions

At Stratton Finance, we have a wealth of experience working with businesses of all sizes right across Australia to secure debtor finance. Give us a call today on 1300 787 288 for a discussion about your business’ needs and we’ll work our magic to find the right finance deal to suit.

Short on time? No worries - send us an online enquiry and someone will be in touch with a response hastily.