This is a big topic, so let's start by defining exactly what we mean when we talk about debtor finance.
Debtor finance refers to a group of working capital products where the underlying loan collateral is the accounts receivable assets of a business. Colloquially this product type is also known as Invoice Finance.
Debtor finance remains a common working capital tool for businesses that trade on credit terms.Instead of waiting for your customers to make payment, funds tied up in your accounts receivable can be accessed now to fund business expenditure, such as to:
- pay wages
- pay creditors
- purchase inventory
- purchase equipment/machinery
Debtor finance is well suited to growing businesses with capital available to the borrower that grows in line with sales. Typically, 80% of the Accounts Receivable ledger is accessible by the borrower. In fact, when a company requires a relatively high amount of capital, debtor finance is usually the most appropriate product. There is generally no requirement for property security to be pledged, instead, the credit quality of the borrower’s debtors is of primary importance to the financier. This can be a real benefit to early-stage companies, traditionally seen as a higher credit risk, that are trading with larger more established businesses.
To learn more about debtor finance, you can download the free eBook by clicking below.
Debtor Finance - Your Guide to Debtor Finance for Australian Businesses.
In this eBook you'll discover:
- invoice factoring
- invoice discounting
- modern invoice finance, and
- how to set up debtor finance