What is debtor finance? A beginner's guide

November 7th, 2013

There's a reason why the age-old business axiom that "cash is king" rings true even to this day.

Regardless of how large or small your company is or how much profit it makes, if it doesn't have a steady cash flow, it's going to land in trouble sooner or later.

This can be especially frustrating when you have a sizeable backlog of debtors who either can't or won't pay you in time.

Exploring the benefits of invoice factoring, or debtor finance, may be just what you need in these situations.

How does it work?

Debtor finance is one of the quickest and most efficient ways to claim the cash your business is entitled to and bolster your cash flow.

There's no need to wait around for weeks or even months for a customer to pay their invoice. With the help of debtor finance, you can access cash tied up with your debtors within 24 hours and start paying for critical business needs such as wages and rent.

Once you deliver a product or service to a customer, you simply send a copy of the invoice to a factoring company. You receive up to 80 per cent of the invoice as an advance - which you can start using immediately to pay for your day-to-day business costs - while the factoring service holds 20 per cent as a reserve.

Once the factoring company receives the payment from your customer, they release the reserve to you, minus a small service fee. Simple!

When can it come in handy?

There are a host of situations in which debtor finance can come to the instant aid of your business.

For instance, if you lack the staffing or time to collect debts yourself, a debtor finance company can take the hard work out of the equation and collect the cash on your behalf.

If your business has reached lending limits or is unable to meet the lending criteria of banks to apply for a loan, invoice factoring can be a much more viable option.

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].