Frequently Asked Questions about Debtors Finance

It’s not uncommon for small to mid-level businesses to hit a cash flow crisis caused by the piling of accounts receivable. It can be concerning to the ones already limited by their capital constraints. So, what is the way out in such situations? The wise way out would be to get in touch with a finance broker to access debtors finance. 

It takes care of the immediate cash crunch, keeping the capital reserves in good shape till the receivables are paid in full. Some businesses might opt for debt factoring to reduce the gap in the cash flow.

While it is a common practice among business owners, there remain queries and doubts, which we will try our best to answer through this small Q and A blog.

What is Debtors Finance?

Debtors finance enables businesses to acquire funding against the pending invoices or accounts receivable to fill the gap in cash flow and suffice the capital reserves. The lender releases funds with a limit against the receivables ledger, allowing the borrower to receive funds equivalent up to 90% of the accounts receivables. The interest is charged on the withdrawn amount that the business uses for its operations.

What is Debt Factoring?

It is a kind of invoice financing in which the business secures a line of credit against the pending invoices or by factoring receivables. The business would sell the accounts receivables to a third-party financial entity to access instant cash flow and focus more of their core business than following up the debtors for collections.

Which Businesses can benefit from Debtors Finance?   

Debtors financing is common amongst start-ups, new businesses, small businesses, enterprises growing through a cash crunch, and the businesses that are expanding. It is popular in the following sectors:

• Transport;
• Manufacturing;
• Mining;
• Engineering;
• Labor;
• Wholesale trade, etc. 

What are the Eligibility Criteria for Debtors Finance?

To get debtors to finance a business has to fulfil the following criteria:

• Active ACN or ABN.
• The receivables should not be pending for more than 90 days.
• Accounts receivables or invoices should be from other businesses in Australia.   

What are the Advantages of Debtors Financing?

Debtors finance gives an instant financial boost to a business that is going through a capital crisis. The benefits are listed as the following:

• It reduces the cash-flow gap.
• There is no need for collateral or security against the financing because the funds are received against the recevables ledger.
• If the invoices are cleared fast then the business gets to save on the interest payments.
• The business is only required to pay interest against the funds utilized.
• The lender can boost up the funds limit without any additional security or warranty.  

Conclusion

Before seeking out debtors finance, it is recommended that you get in touch with a reliable finance broker in Australia to connect you with credible private lenders. That way, you can access flexible financial solutions at your desired interest rates.

Any financing acquired from unreliable sources can land you in a pickle, further aggravating your cash flow situation. You can avoid such unforeseen dilemmas by reaching out to a reputed finance broker for a wide range of financial solutions, including debt factoring.