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Using debtor finance to relieve cash flow pressure

Is your business thriving, but you struggle to maintain positive cash flow?

Many businesses operate with good fundamentals but constantly have trouble with creditors. This is commonly caused by a heavy load of customers owning money, such as construction companies who can only charge at milestones. Payment can be particularly slow, especially if a bank is financing the customer as it can be up to 28 days before payments come through after milestone invoices has been issued.

Stop pulling your hair out! One option to relieve cash flow pressure is to get debtor finance.

Debtor financing companies will take your debtor book and finance up to 80% of the money your are owed within the next 30-60 days. They generally charge a fee of around 3% pa.

Debtor financing can help businesses:

  • Provide cash flow for growth
  • Bridge the gap of slow payments
  • Provide working capital for start up companies
  • Meet operating expenses
  • Get on top of ATO obligations

You can get debtor finance for all or some of your outstanding invoices. Most debtor financing companies will simply require a copy of your invoices to provide 80% of the invoice value within 24 hours. Often they will collect the invoice payments from your clients and pay you the remaining 20%, less any accrued charges, when your client pays them.

Sounds pretty easy! And it is. But it is also easy to get into trouble. It is a very fine line between being solvent and insolvent. Make sure the fees don’t cut out all your profit, or result in a loss transaction.

You should always be mindful of creditors and debtors at the best of times, but with debtor financing make sure you have a super-clear picture.

If you decide to go ahead with debtor financing, make sure you shop around as fees vary from provider to provider.

Talk to us to make sure debtor financing is a good idea for your business. We will also help you assess whether you are in fact insolvent trading, and any implications that can arise from that. But above all, we can work with you to take steps on controlling your cash flow to possibly avoid the need for debtor financing all together.

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