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:

Finance Amount
 - 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.

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

Advantages:

Immediate Cash Flow

• Any 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 fo 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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