Have you been struggling to manage your business’s cash flow? You’re not alone. That is a familiar story, especially for small and medium enterprises (SMEs) in Australia. Luckily, debtor finance can provide a vital lifeline by turning your unpaid invoices into accessible capital. Want to explore how it can be a game-changer for businesses like yours that want to maintain a positive cash flow? Read more below.
Key Takeaways of Debtor Finance
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When Business Is Slow and Money Is Tight
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Multiple factors can tighten the financial belt of a business. These include delayed payments that can impact your cash flow.
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What Is Debtor Finance or Invoice Finance?
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Also known as invoice finance, debtor finance is an innovative financial solution for businesses that want to turn unpaid invoices into immediate funds.
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How Does Debtor Finance Work?
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The lender advances a percentage of the invoice value to your business within a short period, helping you improve your cash flow.
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How Much Can You Get?
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The amount you can receive through debtor finance is typically linked to your eligible invoices.
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Debtor Finance: Partial Ledger vs Full Ledger
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With a partial ledger, you only select specific invoices to finance. On the other hand, the full ledger option involves turning all your unpaid invoices to a lender for a loan.
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When Business Is Slow and Money Is Tight
Seasonal Peaks and Troughs
A surge in sales during the holiday season is always a good thing. But once the festive period ends, retail shops could experience a considerable dip, impacting their cash flow until the next peak season. With such a cyclical pattern, they need a robust strategy to manage their varying cash flow needs throughout the year.
Unforeseen Operational Expenses
Delayed Payments
Say you own a small construction firm. You may have completed a project and issued an invoice, but if the client delays payment for several months, your firm may struggle to pay the workers or buy materials & equipment to take on new projects.
These challenges underscore the need for flexible financial solutions like cash flow finance or business cash flow loans. And for the last challenge listed, there’s a specific solution that can help improve a business’s cash flow: debtor finance.
So, What Is Debtor Finance or Invoice Finance?
Also known as invoice finance, debtor finance is an innovative solution for businesses facing the crunch of unpaid invoices. It essentially allows them to leverage their outstanding invoices to secure immediate funding. Rather than wait 30, 60 or even 90 days for invoice payments, they can access a significant portion of that money upfront, getting a quick boost for their company or firm’s cash flow.
How Does Debtor Finance Work?
- 1. An Invoice Provides A Credit Limit: Any invoices you have written provide the security for your debtor finance line of credit to be drawn against.
- 2. Receive the Advance: You can draw against your invoices up to your pre-determined credit limit. The lender advances a percentage of the invoice value (usually up to a maximum of 80-90%.. This means for an invoice of $10,000, instead of enduring the wait for your customer to settle the payment based on their credit terms, you can swiftly access up to $8,500 from that invoice—almost instantly.
- 3. Client Pays Invoice: Your client pays the invoice according to their usual terms. The amount you owe to the lender is reduced as your clients or debtors pay into your account.
How Much Can You Get?
The amount you can receive through debtor finance is typically linked to your eligible invoices. Generally, most lenders consider invoices eligible if they are:
- Made for goods or services that have been fully delivered or completed
- Made out to customers who are known for good credit standing
- Less than 90 days past the invoice issue date
Meet the criteria, and you will likely access a significant portion of the invoice value. This approach effectively turns your invoices into liquid assets, providing your business with immediate operational funds.
Debtor Finance: Partial Ledger vs Full Ledger
Before getting your revenues in advance, you have to be aware of the two main types of debtor finance. The first one is the partial ledger. With this option, you only select specific invoices to finance. It offers flexibility and is often preferred by businesses that need to bridge occasional cash flow gaps.
Do you experience cash flow issues more consistently? Then, the second option—the full ledger—is more suitable for you. With this type of debtor financing, all your invoices will be financed to give you a more comprehensive financing solution, the greatest possible limit at the best possible rate.
Unsure which type to get for your local shop or construction firm? It is best to consult with a trusted provider of commercial lending solutions, like darkhorsefinancial.com.au.
Access Debtor Financing Today
At Dark Horse Financial, we understand the critical nature of maintaining positive cash flow for your business’s growth and sustainability. So, we tailor our debtor finance solutions to meet your requirements, providing a quick and straightforward path to financial stability. So, whether you are looking to bridge a temporary gap in your cash flow or need ongoing support to manage your sales cycle more effectively, you can count on our team to help. Plus, we process the financing fast!
Don’t let delayed invoice payments hold your business back. Reach out to Dark Horse Financial and start transforming your unpaid invoices into cash today.
