Debtor Finance has many different variants. All have one basic feature - funds are advanced to a certain percentage against debts owed to a firm for services/goods supplied on credit.

Common Advantages

The common advantage of Debtor Finance is that it accelerates cashflow. Normally the money it costs to produce a good/service is tied up in debtors and is not available for the business to use until payment has been received.

Through Debtor Finance, cash becomes available well before the debtor actually pays. The extra cash has traditionally been used to purchase more stock, labour or advertising to grow the business. It can be used for other purposes such as:

• Taking advantage of supplier discounts. Many suppliers offer discounts of 5% or more for payment within 7 Days. This discount more than offsets the cost of factoring.
  
• Removes some of the debtors power in the relationship. The client is much less at the mercy of the debtor in regard to payment.
  
• Avoid offering debtor discounts. Some very large corporations take a significant discount, eg 5% on payments for 14 days. In many cases Debtor Finance is cheaper.
  
• Allows the owners to keep a greater share of their equity as a business grows. All debt lenders will cap the amount they will lend to a proportion of the assets value (whether it be the businesses or the owners own personal assets). Thus, if a business reaches this ceiling, the shareholders must source funds elsewhere. By using funds released from their debtors, they do not have to forgo any equity by bringing in extra capital from outside the business.
  
• Another aspect of factoring, widely used in the USA and only now becoming used in Australia, is as an instrument in acquiring another company or a management buyout.

To discuss your business cash flow requirements contact us directly on 1800 850 509 or Enquire Online.