Using debtor finance to relieve cash flow pressure

HomeBLOG

Is your business thriving, but you struggle to maintain positive cash flow?

Many businesses operate with good fundamentals but constantly have trouble with creditors. This is commonly caused by a heavy load of customers owning money, such as construction companies who can only charge at milestones. Payment can be particularly slow, especially if a bank is financing the customer as it can be up to 28 days before payments come through after milestone invoices has been issued.

Stop pulling your hair out! One option to relieve cash flow pressure is to get debtor finance.

Debtor financing companies will take your debtor book and finance up to 80% of the money you are owed within the next 30-60 days. They generally charge a fee of around 3% pa.

Debtor financing can help businesses:

  • Provide cash flow for growth
  • Bridge the gap of slow payments
  • Provide working capital for start up companies
  • Meet operating expenses
  • Get on top of ATO obligations

You can get debtor finance for all or some of your outstanding invoices. Most debtor financing companies will simply require a copy of your invoices to provide 80% of the invoice value within 24 hours. Often they will collect the invoice payments from your clients and pay you the remaining 20%, less any accrued charges, when your client pays them.

Sounds pretty easy! And it is. But it is also easy to get into trouble. It is a very fine line between being solvent and insolvent. Make sure the fees don’t cut out all your profit, or result in a loss transaction.

You should always be mindful of creditors and debtors at the best of times, but with debtor financing make sure you have a super-clear picture.

If you decide to go ahead with debtor financing, make sure you shop around as fees vary from provider to provider.

Talk to us to make sure debtor financing is a good idea for your business. We will also help you assess whether you are in fact insolvent trading, and any implications that can arise from that. But above all, we can work with you to take steps on controlling your cash

Any further questions? Please contact SMART Business Solutions on 0359 11 7000 or reception@smartbusinesssolutions.com.au

Related News

27 Oct

B.I.T.E Conference 2020

Here's a rare local opportunity to learn more about marketing and managing your business and keeping up to date with the latest innovations that can help run your business more efficiently. A sell out event for the past three years, B.I.T.E Conference is the premier small business event in Greater Melbourne and Frankston region.


READ MORE
18 May

HR & Employment during COVID-19

As COVID-19 struck, Australian businesses had to rapidly evolve and implement new ways of working with very little warning or preparation. Whilst many companies have successfully adjusted to their 'new normal', it's also time to consider what the future holds for employers.


READ MORE
9 May

What Home Office Expenses Are Allowed?

If you perform some of your work from your home office, you may be able to claim a deduction for the costs you incur in running your home office, even if the room is not set aside solely for work-related purposes.


READ MORE