Debtor Finance

Fast and reliable debtor financing

Do you experience a large timing gap between when your goods are sold and when you get paid? Or perhaps when your services are rendered and when the client pays? If so, Debtor Finance or Invoice Finance may be suitable for you, by helping you borrow against the value of your invoices to release funds to invest back into your business.

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Leverage the value of your invoices to accelerate business growth

What is Debtor Finance?

Debtor Finance, also known as Invoice Finance, is when you borrow against the value of your unpaid businesses invoices to release cash to reinvest back into the business. This cash is then typically used for activities that bring in more sales such as acquiring more inventory or to invest into marketing.

There are two types of Debtor Financing – invoice factoring and invoice discounting.
What is invoice factoring?

Invoice factoring is when the lender gives you a line of credit against your unpaid invoices. The lender then manages the accounting and collection of these invoices on your behalf.

Your business will receive up to 80% of the invoice amount upfront less any fees, with the remaining 20% paid to you when the invoice is paid.

As all the collection of the invoices is settled directly with the lender, invoice factoring is more suitable for small or growing businesses that may not have the time to chase up outstanding invoices.
What is invoice discounting?

Invoice discounting is when lender gives you a line of credit against your unpaid invoices, however, you instead sell your invoices to the lender upfront at a discounted rate (80%), with the remaining balance paid to you when the invoice is paid.

With invoice discounting, your business will manage the accounting and collection of invoices, with customers paying you directly.

This makes discounting suited to large companies with their own credit and accounting departments. Invoices are generally issued in batches, and your business must independently manage the reconciliation of invoice payments.
How do I know if Debtor Finance is right for me?

Debtor financing is suitable for businesses which issue large predictable invoices, and their payment terms mean there is a large timing gap between the invoice issue date and the time they get paid.

For invoice financing to be valuable, you should be able to demonstrate a strong history of getting paid from your debtors, as well as have a clear business plan of what you will use the money for once you borrow against your invoices.

The Debtor Finance arrangement with your bank will also have a loan facility limit. This limit can also grow with you as you demonstrate your ability to put the extra capital to good use and consistently collect on your invoices.
What percentage of my invoices can I borrow against?

You can borrow up to 80% of your invoices, depending on the strength of your business and your cash collection cycle.

What are the benefits of Debtor Finance?

Debtor financing allows you to release the value of your invoices sooner so that you can keep investing in business growth. Funds released from Debtor Financing are usually spent on revenue generating activities such as marketing or acquiring more inventory to drive more sales.

Another benefit of Debtor Finance is that you do not need to provide property as security. Instead the bank will take security against the unpaid invoices and future cash flows of your business.
What are the costs of Debtor Finance?

The costs of Debtor Financing are:

  • Establishment Fee for the set up of the facility
  • Facility Fee as interest on funds borrowed
  • Purchase Charge which is a fee on the value of gross invoices purchased or the facility limit
What supporting documents are required for Debtor Finance?

In addition to normal commercial loan supporting documents, you will need to provide:

  • Accounts receivable ledger from your management accounting software
  • Your last 12 months trading accounts
  • Samples of your last 12 months invoices
  • Demonstration that your invoice collection systems and processes are robust
What is the process to drawdown on Debtor Finance?

To draw down on the facility you will need to provide your goods or service and send the invoice to your bank. The bank will release new funds into your nominated business bank account up to the agreed percentage of the invoice.

What are the risks of Debtor Finance?

There is an interest cost associated with the funds borrowed against your invoices. You must ensure that you are eventually able to collect on the invoices to pay back the loan, as well as you are able to make a return on your new sales that is higher than the cost of the capital.

What are the steps to set up a Debtor Finance Facility?

The steps to setting up your Debtor Finance Facility are:

  1. Understand and evaluate your needs
  2. Collect supporting documents
  3. Pick and submit application to preferred bank
  4. Sign loan documents
  5. Set up facility and start receiving funds

WHO TO TALK TO

Need professional advice on Debtor Financing?
These are experts to get in touch with.

Tommy Lim
Managing Director

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