Debtor Finance
Don’t let cash flow problems limit the growth of your business. With debtor finance you can access up to 90% of each approved business account.
Debtor Finance has grown strongly in the last few years, as it has become more widely recognised as a valuable financing tool, supplementing or replacing traditional overdraft facilities or fixed-limit business loans.
What is Debtor Finance?
A Debtor Finance funding service, typically based on the value of a business’s Accounts Receivable ledger. As a business you have to offer credit terms , usually of 30 days, in order to secure orders from other businesses. Current statistics show that these invoices can take up to 60 days to be paid. These delays, cuts off essential cash flow and restricts the growth of your business owed the money.
Debtor Finance, also marketed as: Invoice Discounting, Factoring, Cashflow Finance, Asset Finance, Invoice Finance and Working Capital finance, provides the solution to the cash flow problem by providing a credit advance against your businesses outstanding invoices.
What is Confidential and Disclosed Invoicing?
Debtor Finance products, by whatever name, essentially fall into two categories:
Confidential, where the customer is unaware of the funding being provided, usually called Invoice Discounting, and Disclosed, traditionally referred to as Factoring, where invoices have a notice that warns the customer to pay the funds to the lender in settlement of the debt.
Typically the advance rate ranges from 70% to 90% of your ledger value. The remaining 30% to 10%, known as the ‘retention’ is released following payment of each invoice. Security requirements vary between lenders, but traditionally focus on the value of the Debtors Ledger, supported by a charge or mortgage over the business, and the guarantees of directors. Apart from some specialised lenders, real estate security is not taken. By focusing on the value and collectability of a debtor’s ledger, most debtor finance credit lines will automatically increase in line with sales levels, and provide ongoing working capital to fund the growth of your business.
Most lenders will fund invoices for up to 90 days from the month the invoice was issued, and will ‘recourse’ any invoice not paid by the end of the 90 days. Some lenders may insist on the client taking out Credit Insurance on their customers, with the policy assigned to the Lender.
Credit limits may also be set on individual customers to minimise risk by some Lenders, and ‘concentration’ limits might also limit funding available to major customers.
Suitable industries:
If your business provides goods or services, Business 2 Business on credit, talk to us:
If you are a:
- Building Materials,
- Business services,
- Clothing & Fashion,
- Commercial Cleaning,
- Computers,
- Customs Brokers,
- Distribution,
- Electrical,
- Food manufacture and distribution,
- Footwear,
- Furniture manufacture and import,
- Importers,
- Manufacturing,
- Mechanical & Engineering services,
- Paper & Printing,
- Stationery wholesale,
- Timber wholesale,
- Transport, Earthmoving,
- Wholesale,
- etc.
Export Invoicing is a highly specialised and selective form of facility, and can provide non-recourse or limited recourse funding to exporters/importers, paid at the time of shipment, and with solvency of the overseas importer /exporter underwritten by an overseas bank or institution. Under each category there are a number of lenders, all with varying policies and guidelines regarding their procedures, security, pricing and target markets. There are providers of Import and Export facilities, and their conditions vary widely.
These lenders have minimum terms, exit fees, notice periods, audit requirements, etc. that need to be fully assessed prior to entering into any agreement. In addition, some facilities marketed as ‘confidential’ still require completion of anonymous ‘audits’ before invoices are funded.
We may have a more simple Trade Finance solution that provides a credit base facility, rather than funding one lump sum.
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