If you’re looking around for a way to help free up some working capital, then debtor finance may have crossed your path. But what is it, and how could it help?
Take Back Control of Your Finances
Waiting for clients to pay invoices can be incredibly frustrating because of how important cash flow is to the running of a business. You need it to pay wages, maintain equipment and clear bills from suppliers, to name just a few expenses, and a month of waiting to be paid for goods or the services your company has already provided is too long.
Dun and Bradstreet Australia released figures which showed how invoice payment times have changed over the past few years. While the average is now at a record-low 44.1 days, that is still sitting well above a month of waiting to be paid for goods or services your company has already provided. When your company needs an injection of capital urgently, there aren’t many options out there apart from waiting for clients to eventually pay.
Debtor finance is one of the few solutions.
What Does the Service Provide?
Debtor Finance involves a financier taking control of any unpaid invoices which your company still needs to be resolved and paying you a percentage of that amount – a high percentage, meaning you won’t lose out too much on the total. Fees are taken out of the remaining money, so your debts are paid when clients pay. Financiers also take charge of collecting the money so you won’t need to chase clients again and again to complete the transactions.
Who Uses Debtor Finance?
Debtor Finance is more often than not used by companies who are focused on growth. These are the businesses that need improved cash flow so that they can receive discounts from suppliers, prepare their inventory for peak seasons, upgrade equipment, and produce and sell more goods or services, and can provide immediate cash flow to businesses which can totally eliminate the possibility of financial stress and hardship.
How Long Has Debtor Finance Been Available?
Although the term Debtor Finance may be an unfamiliar term to many, it has been a part of the business world since the 1700s. It’s a financial process that involves a business retaining an agent or company to conduct certain financial transactions for the business owner. By purchasing the business’ accounts receivable debts, it allows that business to receive immediate cash for monies due to them from their debtors.
Who Benefits from Using Debtor Finance Services?
While this process can offer substantial financial support for new and growing businesses, it can also offer major advantages for established companies as well (size is of no importance). Considering that many businesses are affected by the financial challenges of the current economic environment, it’s a relief to know that there are ways to avoid the problems resulting from this. Difficulties such as the inability to raise working capital because of restrictive lending policies can be shielded by having a guaranteed cash flow to cover most or all expenses. Utilising a Debtor Finance facility turns credit sales into working capital for business owners. This results in additional capital being immediately available to use for:
- Reinvestment into the company for increased growth in sales and other business improvements
- Tax and creditor payments
- Credit history improvement
- Purchasing in bulk to receive supplier discounts
- Confidently accepting larger contracts because of healthy cash flow leading to larger profits
Debtor Finance provides a business with unique financing structures that will enable business growth by allowing owners to focus entirely on operating the business while maintaining sufficient cash flow. Business owners can eliminate the stress resulting from late payments and avoid the resulting adverse effects on their business.
For Further Information:
Need more information on how a Debtor Financing option could help your business to grow? Contact the team at PMG Finance Brisbane today.
Partner source: cashflowfinance.com.au/demo/exactly-what-is-debtor-finance/