Negative cash flow is enemy number 1 for SME’s.
Debtor finance & single invoice finance is a true working capital solution to sustain positive cashflow.


Debtor finance is a form of finance available to B2B businesses only, whereby an invoice or progress claim the business owner issues to their customer is advanced to them, less the finance provider’s fee. It is highly uncommon to receive 100% of the invoice value less the fee and the common range is 70-90%. It makes sense to use such a facility when a business owner needs to wait 30-120+ days for invoices to be paid.

By bridging the gap between incoming invoices and outgoing invoices, a business can comfortably maintain buoyancy by having healthier cash flow and thus grow with ease. Debtor finance is being more widely adopted by businesses, as the facility grows with the size of the receivables ledger. An alternative such as a line of credit or overdraft, often secured by property with a bank, always has a limit which is dictated by the loan-to-value ratio (which is normally to 80% of the value of the property) or simply a conservative limit which poses an obstacle to growth once the facility is fully utilised.

Trade & Debtor


    Type of finance:

    Supporting documents i.e. Aged Payables/Aged Receivables ledger, Supplier Invoice to be paid


    The cost of the debtor facility will depend on factors such as the size and variety of debtors, concentration to each debtor, volume of invoice funding per month and overall financial position of the business receiving the finance. Nonbank lenders in the space are sometimes not far off bank pricing and have a much higher risk appetite meaning they may fund invoices issued to small or micro businesses, not just big companies who have great reputations and a low chance of not paying. Some funders can verify your information and debtors by connecting to your accounting software whereby they remain plugged into your application and allow you to draw funds as you raise invoices. Other funders will have a more manual invoice verification process.

    If business owners don’t require an ongoing debtor finance facility and simply require one large invoice to be advanced, that is also a possibility but it will cost slightly more and the same due diligence process is typically required.

    
Sample process:



    Your aged receivables ledger will show a list of customers you have invoiced and whether they are due now or within 30, 60, 90 or older days.

    The financier can offer an approved limit against your debtor book (accounts receivable) or to a higher limit that they believe you’ll grow to or alternatively they may fund a single invoice if you do not require an ongoing facility. There are 2 formats in which your facility might function – disclosed or undisclosed. Disclosed means your clients will recognise that you have a funder advancing your issued invoices and undisclosed means they don’t know. In any case, there should not be a negative stigma attached to having a debtor finance facility.

    They will then advance your business account up to 95% of the value of the invoice (however it’s 80% on average, or as low as 50%) which you can then utilise as needed for business expenses such as wages or an outlay for the next job or project. Once the customer pays either your bank account that the financier controls (undisclosed) or pays the financier’s account (disclosed), you will receive the remaining portion less fees.

    Ideally a portion of the cost of your debtor facility can be absorbed by your customer given you are allowing them to pay you back flexibly but in any case it will allow you to build lasting relationships and take on larger jobs or contracts with large or blue chip companies who generally set lengthy payment terms.

    A long list of benefits:

    

Fast Access to cash and Improved cash flow
    Debtor finance provides convenient and flexible access to cash when you need it. It’s ideal for fast-growing businesses who need to take seasonal fluctuations into account. With debtor finance, you no longer have to rely on clients to pay you promptly or right on time.

    Opportunity to negotiate

    With improved cash flow comes the opportunity to renegotiate payment terms. If you have suppliers, this is a good chance to discuss early repayment discounts that could further reduce business costs.

    Security is not required
    With debtor finance, there’s no need to put down any property or assets as security for your loan. Instead, you offer your debtor ledger or the business itself as security. This makes finance more accessible to younger businesses, businesses with minor credit defaults and those without tangible security.

    Extending your payment terms
    Debtor finance makes it easier to offer improved repayment terms to clients. It takes the worry out of cash flow, so you can concentrate on offering the best service possible.

    

Lower your tax payments
    Principal and interest payments on debtor finance are considered business expenses by the government. So, when tax time rolls around they can be deducted from your business’s income.

    Improve your customer relationships (invoice factoring / disclosed facility)
    Factoring an invoice means the financier will collect the payment (or chase it up) on your behalf. By removing yourself from the debt collection process and instead allowing your lender to manage that side of things, you can focus on what you need to.

    You maintain customer ownership (invoice discounting / undisclosed facility)

    Invoice discounting allows you to manage the payment collection process yourself. This confidential agreement between you and your lender means your clients are not privy to the financing situation of your company.

    

Documents Required

    • Aged Payables/Aged Receivables, ATO Portals, Cloud accounting connection OR Last 2 Years Company Financials, FYTD Interim Profit & Loss + Balance Sheet
    • 12 months bank statements
    • Example(s) debtor invoice and associated paper trail for verification

    Trade & Debtor


      Type of finance:

      Supporting documents i.e. Aged Payables/Aged Receivables ledger, Supplier Invoice to be paid


      Trade finance


      A trade finance facility is not only available to B2B businesses, but to any business that needs to pay suppliers for inventory. The facility can be in the form of a pool of available funds to draw from, i.e. a facility limit or as a line of credit. Trade Finance allows you to delay paying for inventory out of your own capital therefore extending your payment terms with suppliers. It can also be used in conjunction with a debtor facility as another cash flow buffer, giving business owners even more liquidity and breathing room to grow.

      Paying a supplier via a financier may allow you to increase your purchase volumes and can have a flow on effect to discounted pricing, freight and processing costs without depleting your cash reserves.

      Trade finance is a popular finance product for businesses making large stock purchases domestically and overseas before converting the stock/inventory to a saleable product & converting that product to income.

      Trade Finance is best suited to wholesale, manufacturing and distribution businesses who carry large amounts of stock before realising any income. It is becoming more popular with civil and construction related businesses needing to purchase building supplies.

      The exit strategy to your trade line may be a signed purchase order, general business income or in the case of construction a progress payment. In any case, the financial position and creditworthiness of the business is the most important consideration in approving a facility as unlike debtor finance, the associated risks are higher given the job has not yet been completed and invoiced.

      Extend your payment terms
      Improved economies of scale by purchasing in bulk from your suppliers and the ability to pay them on your own terms without depleting cash reserves.

      Purchase from both local and international suppliers
      Trade finance can be used to pay for almost any invoice, and protects your business in the case of purchasing stock from overseas & from new suppliers (if insured). The trade funder will complete a greater level of due diligence than most business owners have time to, they will take care of the currency conversions, insurances and staged payments so you can continue to run your business hassle free.

      Line of Credit
      Plan ahead for your upcoming purchases with an approved credit limit. Knowing how much you can spend on your upcoming stock purchase/s without dipping into your cash reserves will set you up for success.

      Documentation Required

      • Aged Payables/Aged Receivables, ATO Portals, Cloud accounting connection OR Last 2 Years Company Financials, FYTD Interim Profit & Loss + Balance Sheet
      • 12 months bank statements
      • An understanding of who the supplier is and length of relationship to date
      Get in touch

      Trade, Debtor & Invoice Finance