The ‘No Property Alternative’ to the Small Business Overdraft

Young male manager in standing in food factory and looking at tablet.

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Young male manager in standing in food factory and looking at tablet.

Overdrafts are a staple for small business owners in Australia, providing a cash flow solution with money available when they need it. The big 4 love them too. With high interest rates, the family home as security, line fees and small limits it makes the overdraft a low risk, high profit product for the banks. There is an alternative for many small businesses though and that’s debtor finance – also known as invoice financing or factoring.

Debtor finance is well known and used in the US and European markets but less so here in Australia. In the past debtor finance was presented by banks as a product for cash strapped businesses and as a result it’s had some stigma that’s just not justified. With a debtor finance facility a business can raise an invoice based on an order and receive up to 80% of the invoice value straight away. This money can be used to pay for materials, supplies, labour or other costs that go towards providing their solution until their customer pays. If a business is on 60, 90 or even 180 day terms (if you supply a supermarket in this country I feel your pain) this kind of cash flow solution can allow for growth, expansion and solve a lot of problems that could occur while a small business waits to get paid. Rates are generally well below the overdraft rates that banks charge and all without needing property for security.

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