Debtor Finance

Debtor finance refers to products that fund a business by financing its invoices. This form of lending is gaining momentum in Australia and is a way to finance small and/or growing businesses that need working capital. The product has evolved and may be more attractive than an overdraft facility. Debtor finance will allow you to finance those slow paying invoices, which will provide you with the funds to pay for company expenses.

The two most common types of debtor financing are invoice factoring and invoice discounting. Both types solve the same problem and provide similar benefits but work differently and have different features.

• Invoice factoring is used by small companies that have cash flow problems.  Using this facility regularly can help improve cash flow on an ongoing basis. It works by financing individual invoices, usually in two instalments. The first instalment covers 80% – 85% of the total value of the invoice. The second instalment, the remaining 20% minus fees, is deposited to your account as soon as your client pays the invoice in full.
• Invoice discounting is used by larger companies that have established credit and collections procedures. The solution provides funding only. Credit and collections are handled by the client rather than the finance company.