Many businesses in Australia are not aware that they can use their debtor book, to effectively finance growth and even out cash flow. Debtor finance provides an innovative alternative to businesses overdraft facilities – one that is based on business debts without the need for bricks and mortar security.

What is Debtor Finance?

Debtor Finance is one way for businesses to raise working capital.

Debtor Finance – also known as invoice discounting - provides the business (the borrower) with finance based on the value of its outstanding debts. A revolving credit facility is set up which provides funding at up to 90 percent of the value of invoices being issued by the business. The rest is made available to the business, less any interest or fees, when their customer (or debtor) pays.

• Debtor finance is suitable for a wide range of businesses across both manufacturing and services industry sectors with annual revenues between $1 million and $75 million. Potential borrowers must have ‘business to business’ invoices where the goods and services have been delivered and business has clear title to the monies owing.
• Debtor finance classification - unregulated.
• Debtor finance purpose - working capital funding. Funding can be used for a variety of purposes including to grow existing and new lines of business, reduce creditors, gain supplier discounts, manage seasonal trading demands, and other special scenarios such as debt restructuring orbusiness acquisition.
• Debtor finance term - no fixed term. Cancellable upon 60 days notice.
• Debtor finance interest rate type - variable.
• Debtor finance minimum facility size - $150,000;
• Debtor finance advance rates - maximum advance rate of 90% depending on borrower risk grade and historical debtor payment performance.

 

Invoice Discounting Compared to an Overdraft and Factoring

Overdrafts	Invoice Discounting	Factoring
Security required, usually property	Business maintains credit control	Outsourced collections gives a third party contol over a businesses biggest asset
Lower levels of funding available	Flexible limits	Intrusive on customer relationships
Uncertainty of renewal terms	Typically undisclosed to customers	More expensive
Fixed limits	Finance up to 90% of invoice value	Reputation of being a last resort
	Rates competetive with overdrafts
	Security scaled to match risk
	Secured with fixed and floating charge on business and director personal guarantees

Contact Ability Finance brokers for more information about debtor finance and how it can help your business.