Most businesses feel they have no choice but to follow the industry practice of issuing invoices to customers on credit terms of at least 30 days. They are forced to follow this because it is the only way to acquire and retain clients. Unfortunately, a lot of these invoices can take up to 60 days to get paid, and this kind of delay constricts vital cash flow of the business and hampers growth.
One solution around this is debtor finance. It is a way to fund slow-paying invoices and is aimed to improve the company’s cash flow and its ability to pay operating expenses.
Debtor finance can be described as the process of funding a business by using its ledger’s accounts receivable as collateral.
There are several solutions that fall under ‘debtor finance.’ Typically these include asset finance, cash flow finance, invoice discounting, factoring, invoice finance and working capital finance.
All these debtor finance solutions can be categorised into two:
- Confidential — where the customer is not aware of the funding provided; or
- Disclosed — where invoices contain a notice that tells the customer to pay the funds to the financier in settlement of the debt.
Securing debtor finance can be easy for businesses with high value of accounts receivable in its ledger. Financiers will typically require the personal guarantees of company’s directors, a pledge of specific assets as collateral and will implement a type of mortgage over the business.
Is this something you think you need? Are your credit terms hampering your success? Have a chat to us about your options. Call our office on 08 9417 5550 and ask to speak with one of our Commercial Finance Specialists.