Debtor Finance is a way to finance your business using your accounts receivable. Your finance provider funds you based on your outstanding invoices. This can be an effective way to increase your business’ cash flow.
How it works
‘Debtor finance’ is a broad term, encompassing a range of variations. Generally speaking, you receive funds based on your unpaid invoices, allowing you to receive most of your sales income within a few days, rather than on 30- or 60-day terms. Your business can keep moving forward rather than having to wait for payments.
Factoring vs discounting
There are two main types of debtor finance: invoice factoring and invoice discounting.
In an invoice factoring arrangement, the finance provider also manages your sales ledger and assists with account collection. This can be very helpful for smaller businesses as it allows you to focus on building your business rather than chasing debts.
Invoice discounting is different, in that you manage your own accounts and repay your finance provider, rather than the provider collecting for you.
One significant advantage is that your debtor finance capacity grows are you sales grow. Other finance options, such as an overdraft, do not offer this kind of benefit.
Another bonus is that both factoring and discounting arrangements are self-liquidating. That is, rather than securing your finance with property, such as in a mortgage, the finance you are accessing is money already owed to you. The kind of debt you are entering into is therefore of a lower level and potential impact to your business.
Is debtor finance for you?
Debtor finance is particularly effective for small- and mid-sized businesses who typically provide goods or services on trade-credit arrangements. Various arrangements cover from cash provision to accounts management.
If you think debtor finance could help your business grow, talk to us today. We’re here to help.