Managing Cash Flow with Debtor Finance

The world of business is possibly more difficult now than it has been for decades. Whilst there are opportunities to build and grow a company, years of hard work and dedication could be undone through no fault of the entrepreneur. Unfortunately it is a way of life that many good businesses are jeopardised by the very people they exist to satisfy – their customers.

Offering credit is an accepted way of conducting oneself, most commonly in the form of ‘time to pay’. The standard settlement time for invoices is 30 days. But what happens when a customer becomes a “slow paying” paying debtor? Or the extra sales, although profitable strain your cash until the client pays even if they do in 30 – 45 days as there are wages to pay in the meantime?

The late payment of invoices or the sheer amount of outstanding debtor payments could wreak havoc on a company’s cash flow, and force it in turn to become a slow paying debtor to its suppliers. This could harm goodwill, and put stress on its upstream business relationships. Small and medium businesses are more at risk of this problem than the large corporations that have been around for decades, but there is something that can be done to ease the problems caused by late paying customers.

Debtor Finance has traditionally been viewed in Australia as the borrowing of last resort for failing companies, but in Europe and America it is accepted business practice that allows financial flows to be regulated.

This practice of debtor finance is gaining popularity in Australia though. Effectively invoices are used as guarantees for cash advances from a third party financing company. The advance is typically 80% of the value of the invoice, with the balance paid upon final and full payment of the invoice by the end customer. At this point, any fees payable to the financing company are deducted. Typically, these will be in the region of 2% – 3%: perhaps less than the discount a business would offer its customer for prompt payment.

More than this, with debtor finance, working capital that might otherwise be tied up in unpaid invoices is released back to the company. This money can then be used to pay inward invoices, wages, and other costs. Most importantly, better cash flow enables a business owner to concentrate on what he does best: seek new markets, grow the company, and develop success. Best of all, when you arrange debtor finance, it can be in place within 48 hours of the request, and allow the business, and its owner, to retain its good name with its suppliers.

Finlease have years of experience helping clients to grow their businesses by making the right debtor financing agreements. We also understand the new innovative methods of achieving cash flow goals that are coming onto the market. Talking to Finlease will allow a business to benefit from our experience and expertise of sourcing the best and most competitive deal that helps our clients’ businesses thrive in all market conditions.

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