Debtor Finance

This type of “cashflow” finance (also known as “Factoring” and “Invoice Discounting”) is a method of raising working capital against outstanding debtors/accounts. This type of financing is not a loan, as such. It is the “sale” of a trade debtor book for cash.

As part of normal trading operations, a business may offer payment terms to customers, for its goods & services and raise invoices accordingly. These invoices (trade debts) can be “sold” to a Lender who will advance up to 80% of the face value of those invoices, in return for taking a “debenture charge” over the Debtor book. Trade Debtors then pay their invoices, and the remaining 20% of outstanding monies are advanced upon collection of debts.

Generally, the customer retains control over collection of debts and related accounting functions.

Overview:

Nature of Goods

generally any valid invoice for goods/services provided, as long as those goods/services are completed, delivered and accepted by the Trade Debtor

Amount of Finance

generally from $200,000

Term of Finance

ongoing facility (may be terminated, with appropriate notice being given)

Repayments

either interest is charged on outstanding monies, or the Lender may retain a percentage of Debtor invoice payments, as collected. Other Establishment fees and Administration charges may apply.

Advantages:
Immediate CashflowAny business that provides credit to make sales may wait up to 120 days to receive the income from those sales. This method of finance provides up to 80% of invoiced sales up-front, with the balance of outstanding monies advanced upon collection. This effectively converts credit sales into cash, providing an enormous cashflow injection.

Continuing Line of
Funding

Debtor finance facilities are generally ongoing, in line with normal trading terms extended to Debtors. This means that there is a continuing income stream available to be utilised for ongoing business purposes
Preserves Profit
Margin
Many businesses offer discounts to their Debtors for prompt payment of accounts and invoices. Under a Debtor Finance arrangement, a business receives funds based on the face value of invoices, thereby preserving profit.

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