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trade debt financeTrade Debtors Finance refers to funding options using the company’s accounts receivables as collateral. In general, companies that have minimum working capital run into cash flow difficulties when invoices are paid under 30 day terms. Slow paying invoices can be used for debtor finance solutions to improve the company’s cash flow position and enable it to pay for essential operating expenses.

Many debtor finance credit lines are obtained from the value of account receivables’ ledger and could increase with improvement in sales to provide working capital for the business. Advance rates can vary from 70% to 90% of account receivables’ ledger value.

Debtor finance is similar to asset based loans. The accounts receivables are submitted to the lender who provides funds to the company’s account based on the percentage that is financed. Funding of invoices can be up to 90 days from date of issuance of the invoice, with unsettled invoices recourse at the end of 90 days.

How Debtor Financing helps

Debtor finance is growing in popularity across Australia. It provides alternative finance solutions that don’t require real estate collateral. One of the biggest advantages of this type of facility is that it increases as your business grows. It does not have a set limit as your facility grows with you. It can also be used together with other types of bank financing.

The main types of this facility include invoice discounting, a facility where your clients would not be aware of any lender involvement and you collect payments from your clients as usual. Co–operation factoring is a facility where your clients are told of a lender’s involvement. Full-service factoring is another disclosed facility where the lender managers the debtor’s book for collection of payments and debt management.

Debtor’s finance can benefit your business when:

  • There is an increase in your account receivables
  • When there is stock build up
  • When creditors extend payment beyond agreed upon terms
  • When there is critical tax or super liabilities
  • When directors or shareholders have loans with the business
  • When working capital is low and cash flow needs improvement

A debtor finance facility entails some costs including application fee, management fee based on gross invoices and a discount fee which is based on percentage of borrowed funds.

If you need to improve your cash flow position and want to obtain a loan facility without putting up a brick and mortar security, debtor financing may be your ideal solution. Speak to our experienced consultants today to learn more about converting your account receivables into available cash.

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